Following through on pledges made to Senate lawmakers earlier this month, the Treasury Department and Internal Revenue Service issued guidance that widens from four years to five years the window for renewable developers to complete projects started in 2016 and 2017 and reap the full value of the production tax credit or investment tax credit.
The guidance also said developers who invested at least 5% of their project's cost by the end of 2019 in order to remain eligible for the tax credits will retain that eligibility as long as they reasonably expected they'd actually have the equipment they're using to satisfy the 5% threshold within 105 days of purchase.
Extending the safe harbor "will provide flexibility for taxpayers to satisfy the beginning of construction requirements and limit the impact of COVID-19-related delays on the ability to claim tax credits," the IRS said in a statement Wednesday.
The production tax credit, or PTC, has been primarily used by wind developers, while the main beneficiaries of the investment tax credit, or ITC, are solar developers. Both types of developers are being hampered by supply chain disruptions and construction and permitting delays due to the COVID-19 pandemic.
The Treasury Department on May 7 said it would update the eligibility guidance for the tax credits in response to a request from members of the Senate Finance Committee, many of whom represent wind- and solar-producing states.
Energy tax experts say the biggest beneficiary of the revised guidance are wind developers whose four-year window to finish their projects and thus remain eligible for the PTC, runs out after 2020.
Absent an extension of the four-year safe harbor, the resulting uncertainty over those projects' eligibility threatened to scare off tax equity investors that reap the value of the PTC, especially since developers risk losing the credit entirely if they fail to otherwise convince the IRS that they were continuously building their projects.
"One additional year of safe harbor for 2016 and 2017 projects provides the flexibility the industry needs to prevent the immediate harms from COVID-19 disruptions, without costing the federal government any additional money," Tom Kiernan, CEO of the American Wind Energy Association, said in a statement Wednesday.
Time pressures aren't as acute for solar developers, since the four-year safe harbor for the completion of projects to qualify for the full value of the ITC expires at the end of 2023 and the credit itself only decreases in value and never expires.
Nevertheless, coronavirus-fueled supply chain disruptions threw into question whether solar developers would be able to invest at least 5% of their project's cost by the end of 2019 under IRS guidelines in order to still qualify for the full ITC.
While most developers could have made a strong case to the IRS that if not for the pandemic, they reasonably expected to have their equipment in time, the agency making that clear in an official notice eliminates any lingering uncertainty for developers and tax equity investors.
"We appreciate the additional layer of clarity the Treasury Department has provided with respect to solar projects started in 2019," Erin Duncan, vice president for congressional affairs at the Solar Energy Industries Association, said in a statement Wednesday.
--Editing by Bruce Goldman.
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