Breaking down renewable energy tax credit extensions

The Bipartisan Budget Act of 2018 (the Act), passed in February as a compromise federal spending bill, includes an array of tax credits for renewable energy. The Act retroactively renews tax credits for wind and solar “orphaned technologies” left out of the 2015 extension. However, for some of the orphaned technologies, tax credits reward bold developers who started project construction in 2017 while the credits had lapsed. The Act is not favorable for developers who sought a guarantee of tax credits and did not begin construction before 2018.

Here are some highlights of the Act’s provisions:

Retroactive extensions only
Retroactive to Jan. 1, 2017, extensions of the production tax credit (PTC), and investment tax credit (ITC) in lieu of the PTC, are available for seven renewable technologies if construction began by Dec. 31, 2017. Applicable technologies include closed-loop biomass facilities, open-loop biomass facilities, geothermal energy facilities, landfill gas facilities, trash facilities, qualified hydropower facilities, and marine and hydrokinetic renewable energy facilities. 

Retroactive and prospective extensions
Retroactive to Jan. 1, 2017, five technologies receive a retroactive as well as prospective ITC extension including fuel cells, small wind, solar lighting equipment, microturbine power plants, and combined heat and power systems. 

For fuel cells, small wind and solar lighting, the ITC varies as follows:

  • Projects that begin construction before 2020 = 30 percent ITC
  • Projects that begin construction in 2020 = 26 percent ITC
  • Projects that begin construction in 2021 = 22 percent ITC
  • Projects that begin construction after 2021 = ineligible for ITC
  • Projects placed into service after 2023 = ineligible for ITC

Qualified microturbine, combined heat and power, and geothermal heat pump facilities are entitled to a 10 percent ITC if construction begins before 2022.

Fuel credits
Extensions of the alternative fuel, alternative fuel mixture and biodiesel incentives are retroactive to fuel sold or used in 2017. The Act also extends the second-generation biofuel producer credit retroactively to biofuel produced through Dec. 31, 2017. The Act provides for a one-time filing of all 2017 alternative fuel and biodiesel claims.

The extension for retroactive-only technologies is good news for project developers who began construction in 2017 with confidence Congress would eventually reinstate these tax credits. Developers who have not yet done so can claim the extended benefits for 2017 on amended 2017 tax returns. 

Unfortunately, developers who held back on new construction lose out: the tax credit extension they waited for was enacted in 2018 but only helps projects that began construction before 2018. The tax credit provisions have expired for 2018; an extension is not anticipated until late in 2018 – at the earliest.

For more information on this topic, or to learn how Baker Tilly renewable energy specialists can help, contact our team.