On December 31, 2020, the IRS released Notice 2021-05 (the “Notice”) on its website, in advance of its official publication. As discussed in our earlier blog post, the Notice provides favorable guidance for offshore renewable energy projects (“Offshore Projects”) and renewable projects constructed on federal land (“Federal Land Projects”) and generally allows these projects to be placed into service 10 calendar years after the calendar year during which construction began (the “10-Year Continuity Safe Harbor”) without potentially jeopardizing the amount of the PTC (in the case of a wind farm) or the ITC (in the case of wind farm that elects the ITC or a solar project). Under the originally released Notice, only Offshore Projects and Federal Land Projects that require the construction of high-voltage transmission lines to connect the project to the U.S. electrical grid system are eligible for the for the 10-Year Continuity Safe Harbor.

On January 19, 2021, the Notice was officially published in the Federal Register. As one would expect, the published Notice is virtually identical to the released version, with one key difference. The officially published version of the Notice does not require an Offshore Project to include the construction of high-voltage transmission lines to connect the project to the U.S electrical grid system. The requirement, however, remains for a Federal Land Project. Interestingly, the Notice still explains that one of the justifications for the extended 10-Year Continuity Safe Harbor for Offshore Projects and Federal Land Projects is the longer development period due to the need to construct new transmission lines to connect the project to the grid, but apparently this justification is no longer a requirement in the case of an Offshore Project. Some industry participants were concerned about that requirement in the case of an Offshore Project, so perhaps the deletion of it in the officially published version was in response to these concerns.

 

On December 31, 2020, the US Treasury Department and the Internal Revenue Service (the “IRS”) issued Notice 2021-05 (the “Notice”), which provides relief for offshore renewable energy projects and renewable projects constructed on federal land. Specifically, the Notice allows the Continuity Safe Harbor to be satisfied for projects constructed offshore or on federal land if they are placed into service no more than 10 calendar years after the calendar year during which construction began. This relief is expected to provide additional certainty for taxpayers developing projects offshore or on federal land, given the significant construction delays often associated with such projects. Read about the Notice in this Mayer Brown Legal Update.

On Monday, December 21, 2020, the United States Congress passed a second large stimulus bill[1] (the “Relief Bill”) aimed at curtailing the economic disruptions caused by COVID-19. The Relief Bill, among other things, extends renewable energy tax credits for wind projects, solar projects and carbon capture and sequestration and contains specific provisions addressing offshore wind farms. These extensions include a one-year extension for wind projects, a two-year extension for solar projects and a two-year extension for carbon capture and sequestration projects. President Trump is expected to sign the Relief Bill and has until December 28, 2020 to do so, when the current stopgap funding measure expires. Continue Reading Solar and Wind Tax Credits Extended, Again

Off shore wind turbines (Digital Composite)

Last night, Congressional leaders announced an agreement on a $900 billion COVID relief bill. While the text of the bill has not been released as of this writing, people familiar with the negotiations have indicated that the deal will extend renewable energy tax credits for wind and solar projects and the Section 45Q carbon capture tax credit, with special provisions addressing offshore wind farms.

According to these sources, the bill would extend the 26% investment tax credit available for solar projects that begin construction in 2020 by two years – to the end of 2022. A 22% credit would then be available for projects that begin construction in 2023, with the credit phased out afterwards. In the case of the production tax credit, eligibility at the 60% level would be extended for one year for projects that begin construction before the end of 2021.

Additionally, according to these sources, the bill would allow offshore wind farms to elect either the production tax credit and the investment tax credit, with the investment tax credit extended by five years, allowing a full 30% investment tax credit for offshore wind farms that begin construction by the end of 2025.

For carbon capture projects, which currently must begin construction by the end of 2023, the bill would allow credits for projects that begin construction by the end of 2025.

The bill would also extend excise tax credits for alternative fuels and income tax credit for biofuels, as well as production tax credits for coal mined on tribal lands. The bill would additionally extend a credit for installation of electric vehicle chargers and other alternative fuel vehicle refueling property through 2021. However, the bill would not extend the $7,500 consumer tax credit for the purchase of electric vehicles, which phases down once a manufacturer sells 200,000 electric vehicles.

The split-roll initiative in California would result in major tax increases on solar projects and increase the price of green power by eliminating the concept of “new construction”, thereby making meaningless the exclusion for active solar energy systems.  Read about the initiative in this #mayerbrown client alert.

On May 27, 2020, the US Internal Revenue Service (the “IRS”) released Notice 2020-41 (the “Notice”), updating the IRS guidance on the start-of-construction rules for the production tax credit (“PTC”) and energy investment tax credit (“ITC”) by extending the continuity safe harbor for projects that began construction in either calendar year 2016 or 2017.1 Additionally, the Notice provides relief under the so-called 3 ½ month rule where payments were made on or after September 16, 2019, but the services or property were not expected to be provided until 2020, as long as they are actually received by October 15, 2020.

Continue Reading IRS Provides Start-of-Construction Relief for Renewables in Light of COVID-19