[vc_row][vc_column][vc_column_text]On December 21, 2020, Congress extended the deadline to start construction on projects that qualify for federal tax credits. These projects include renewable energy projects such as solar, wind, fuel cell, geothermal, biomass, incremental hydroelectric, and others. The extension provides added time for developers who were challenged by delays due to COVID-19.
The extensions include:
- Solar: Solar deadlines are extended by two years. Projects that started in 2020 or will start in 2021 or 2022, will qualify for a 26% investment tax credit. Projects starting in 2023 get a 22% tax credit. The tax credit decreases to only 10% for all projects starting after 2025.
- Onshore wind deadlines are extended through the end of 2021. Projects that started construction in either 2020 or 2021 will qualify for production tax credits at 60% of the full rate on the electricity output for 10 years or an 18% investment tax credit on the project cost in the year the project is put in service. Production tax credits at 60% of the full rate are currently $15 per MWh.
- Offshore wind projects qualify for a 30% investment tax credit if construction was started after 2016 until 2025. The change is retroactive, allowing any project that started construction as early as 2017 to now qualify for the 30% credit. However, the project must be completed within four years after construction starts. Developers will not be able to claim production tax credits on the electricity output, instead of an investment tax credit, on any project on which construction starts after 2021.
- Other Renewables: Other renewable energy projects that began construction in 2020 and qualified for production tax credits, will now have until the end of 2021 to qualify. The full rate for geothermal and closed-loop biomass projects is currently $25 a MWh, while the full rate for other types of biomass, incremental hydroelectric, landfill gas, waste-to-energy, etc., is currently $13 a MWh. In addition, Congress authorized a 30% investment tax credit to be claimed on new power plants of up to 50 megawatts in size that generate electricity using waste heat from buildings and other equipment. The building or other equipment cannot be another power plant and construction must start by the end of 2023.
What opportunities do the tax credits provide?
Extended deadlines for beginning construction on renewable energy projects present several attractive immediate and long-run opportunities for developers. Depending on the specific renewable energy asset and the timing of construction, investment tax credits as high as 30% and production tax credits up to 60% can improve free cash flow, reduce liabilities, and strengthen net income. These incentives also have a direct positive impact on two important financial reporting metrics used by analysts and investors to assess the strength of a company. A company’s short-term obligations relative to its assets are measured by the current ratio—a metric that improves when capital projects are bundled with extended tax credits. Debt to equity ratio—total debts relative to shareholder equity—can also decrease for developers taking advantage of these extended tax credits, enhancing the company’s position for future debt financing and investor appeal. This legislation incentivizes projects that improve shareholder value and enhance sustainable practices and corporate citizenship—without having to sacrifice one for the other.[/vc_column_text][vc_cta h2=”Now is the time”]Although the deadlines for beginning construction on renewable energy projects were extended, now is the time to adopt and implement a sustainable energy management strategy. Evolution Energy Partners has a track record of success developing sustainable energy management strategies that provide measured value to their clients’ sustainable footprint. Contact the EEP team today to learn more.[/vc_cta][/vc_column][/vc_row]