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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

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

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

On July 17, 2019, the US Internal Revenue Service (IRS) issued final regulations (T.D. 9872) providing guidance on the rules under Internal Revenue Code (IRC) section 50(d)(5) that require an income inclusion by the lessee in the so-called “pass-through lease” structure used with investment tax credit property. The final regulations adopt, without change, the proposed

As previously discussed on this blog, Maryland, in 2017, become the first state in the county to offer an income tax credit for energy storage systems and, to our knowledge, as of 2019, it remains the only state to do so.

On February 21, 2019, the Maryland Energy Administration (“MEA”) announced that it is now accepting applications for the 2019 Maryland Energy Storage Income Tax Credit Program.
Continue Reading Maryland’s Energy Storage Tax Credit Turns Two

In a letter dated May 8, 2018, Senator Rand Paul (R-Ky.), in support of his state’s coal industry, urges the U.S. Department of Treasury (“Treasury”) to make significant changes to the existing “beginning of construction” guidance issued by the Internal Revenue Service (“IRS”) in a series of notices (“IRS Notices”).  The IRS Notices include industry-friendly

On June 22, 2018, the IRS released Notice 2018-59 (the “Guidance”).  The Guidance provides rules to determine when construction begins with respect to investment tax credit (“ITC”) eligible property, such as solar projects.  The Guidance was much awaited by the solar industry because the date upon which construction begins governs the determination of the percentage level of the ITC, which is ratcheted down for projects that begin construction after 2019.

In addition to applying to solar and (fiber-optic solar), the Guidance applies to the following energy generation technologies: geothermal, fuel cell, microturbine, combined heat and power and small wind.

Overview of Beginning of Construction

The ITC percentage for a solar project is determined based on the year in which construction of the project begins, provided the solar project is also placed in service before January 1, 2024, as follows: (i) before January 1, 2020, 30%, (ii) in 2020, 26%, (iii) in 2021, 22% and (iv) any time thereafter (regardless of the year in which the solar project is placed in service), 10%.

The Guidance is quite similar to existing guidance for utility scale wind projects.  The utility scale wind guidance is discussed in our 2016 Update.  As expected and consistent with the wind guidance, the Guidance provides two means for establishing the beginning of construction of a solar project (and other ITC technology projects): (i) engaging in significant physical work either directly or by contract the “Physical Work Method”) or (ii) paying or incurring (depending on the taxpayer’s method of accounting) five percent of the ultimate tax basis of the project (the “Five Percent Method”).[1]  As is the case with wind, the Guidance provides that the IRS will apply strict scrutiny of the facts and circumstances to determine if the project was continuously constructed from the deemed beginning of construction date through the date the project is placed in service.[2]

Four Year Placed-in-Service Window

The wind guidance provides a four year window for the project to be completed and to avoid the scrutiny as to whether the construction was continuous.   There had been speculation that the window for solar (or at least some classes of solar) would be shorter because the time to construct solar projects (especially rooftop solar) is generally shorter than the time to construct a wind project.  In what is a relief to the solar industry, the Guidance provides solar, and the other ITC technologies, a four year window as well.       
Continue Reading Beginning of Construction Guidance for Solar and Other ITC Technologies

In a recently released private letter ruling (available here), the IRS confirmed that residential solar energy batteries are eligible for the tax credit under Section 25D of the Code (the “Residential Solar Credit”), subject to an important and unexpected caveat.

In Priv. Ltr. Rul. 2018-03-009 (Mar. 2, 2018) (the “PLR”), the taxpayers had previously installed a solar energy system on their home and claimed the Residential Solar Credit.  The taxpayers were now purchasing a battery to integrate into their existing solar energy system.  The battery was designed such that charging would only occur when the solar energy system was producing energy and only up to the instantaneous solar power, thereby ensuring that all energy that was used to charge the battery would come from the solar energy system. The remaining useful life of the solar energy system was expected to exceed the useful life of the battery.  The taxpayers posed two questions to the IRS: (1) Is the battery a type of property that is eligible for the Residential Solar Credit and, if so, (2) will the battery remain eligible for the Residential Solar Credit even though it was installed subsequent to the year in which the solar energy system was installed.
Continue Reading Residential Solar Storage is Eligible for Tax Credit, Subject to a 100% Cliff

The National Renewable Energy Laboratory (NREL), a federally-owned laboratory that is funded through the U.S. Department of Energy, recently released a report titled Wind Energy Finance in the United States: Current Practice and Opportunities. The report provides a thorough overview of the capital sources and financing structures commonly used in wind energy finance. Below are quotes from the report that are of particular interest to tax equity market participants. We applaud the authors for writing a comprehensive report on a topic that is extremely technical.  Also, below we include comments clarifying certain tax or legal concepts referenced in particular quotes.

Wind Expansion in 2016

• By the end of 2016, cumulative U.S. wind generation capacity stood at 82.2 gigawatts (GW), expanding by 8.7 GW from 2015 installations levels. Wind energy added the most utility-scale electricity generation capacity to the U.S. grid in 2015 and the second most in 2016. Project investment in wind in the United States has averaged $13.6 billion annually since 2006 with a cumulative investment total of $149 billion over this time period. The investment activity demonstrates the persistent appeal of wind energy and its significant role in the overall market for electricity generation in the United States.

Future Outlook

• Looking ahead, the near-term outlook for wind energy reported previously suggests a continued need for capital availability at levels consistent with deployment seen in 2015 and 2016. The market has shown the capacity to finance projects at this level using current mechanisms at economically viable rates; however, increased deployment could necessitate new sources of capital. Broad changes to the financial industry—such as the possibility of major corporate tax reform, the currently scheduled phase out of the PTC and ITC for wind, and, specifically, a change in the role of tax equity—could fundamentally reshape the predominant mechanism for wind energy investment. It is possible that financing practices may need to evolve, while the growing body of wind energy deployment and operational experiences could help to attract new market participants.

PTC and Accelerated Tax Depreciation

• The United States Federal Government incentivizes renewable energy projects principally through the tax code. As of this writing, wind technologies are eligible to receive either the production tax credit (PTC) or the investment tax credit (ITC) (one or the other, but not both) as well as accelerated depreciation tax offsets through the Modified Accelerated Cost Recovery System (MACRS).


• The tax credit incentives (the PTC and ITC) provide an after-tax credit on tax liabilities (i.e., the taxes paid) and thus are often described as dollar-for-dollar tax incentives. As of this writing the PTC is currently worth $0.024 for every kWh generated over a 10-year period while the ITC is structured as a one-time credit valued at 30% of eligible system costs. For projects to claim the aforementioned full PTC or ITC values, however, the project is required to have begun construction prior to December 31, 2016. Projects that begin construction in 2017 through 2019 are available for a reduced-value PTC or ITC.
Continue Reading NREL’s Wind Finance Report Highlights