Renewable Energy Law
New Tax Credits for Renewable Energy
As our nation prepares for new administration under President Biden, we can expect a strong interest in renewable energy. Biden campaigned on the promise of launching a national effort to build a modern, sustainable infrastructure and secure an equitable clean energy future. To that end, he will no doubt support legislation to create clean energy jobs and construction projects.
But even before Biden took office, Congress contributed to the renewable energy trend by passing the U.S. stimulus bill, known as Consolidated Appropriations Act, 2021, in late December. This Act includes several alluring additions and extensions to tax credits available for renewable energy projects.
What the Stimulus Bill Provides
While most news coverage about the Act primarily focused on the size of the relief checks for taxpayers, the nearly 6,000-page document also contains consequential provisions that address sustainability, renewable energy, and climate change. These provisions may be the start of a major push toward renewable energy sources and greenhouse gas reductions. These developments create a substantial opportunity for renewable energy projects.
Solar Investment Tax Credits
In promising news for the roofing industry, the Act extends the current solar investment tax credits (ITCs) for two years. Solar projects (including solar panels and water heating) that have started or will start construction between January 1, 2020, and December 31, 2022, are eligible for 26% ITCs. For projects starting construction between January 1, 2022, and December 31, 2023, the ITC eligibility drops to 22%. The eligibility is only 10% for projects that begin construction in 2024 or start service after 2025.
These incentives could make solar quite attractive to contractors and clients, but given those deadlines, we will need to move quickly. As demand grows, your roofing company could benefit from offering solar services, if you do not already.
Other Energy-Related Tax Credits
In addition to solar incentives, the Act provides ITCs and production tax credits (PTCs) for other energy sources.
- Fuel and Vehicle — The Act offers a host of fuel and vehicle tax credits to support renewable technologies, including alternative fuel, biofuel, fuel cells, and electric vehicles.
- Commercial Energy — Under the Act, the current Internal Revenue Code (IRC) Section 179D commercial energy efficiency deduction will become permanent and provide a yearly cost-of-living adjustment. This incentive encourages the priority of building energy conservation.
- Wind — Current law provides 60% PTCs to wind facility owners for the first ten years of service if construction starts before the end of 2020 and service begins by 2024. For projects that initiate construction in 2021, the Act extends that eligibility by one year.
- Offshore Wind — The Act provides a 30% offshore wind ITC for projects starting construction in U.S. coastal and navigable waters by January 1, 2026.
- Carbon Capture Storage — Currently, IRC Section 45Q offers a tax credit for carbon capture storage. This process enables power plants to contain their carbon emissions for hundreds of years in saline rock formations, so they are not released into the atmosphere. The Act extends the construction start date to December 31, 2025, allowing more time for facilities to qualify for the tax credit.
In its final form, the Consolidated Appropriations Act was one of the largest pieces of legislation in U.S. history—so large that many lawmakers admit they had not thoroughly read it before voting on it. The public was not aware of many of the bill’s details until it was signed into law. For the renewable energy sector, these provisions were a pleasant surprise. The incentives, along with continued support from the Biden Administration, are likely to inspire substantial growth and investment in the renewable industry for many years.
If you have been trying to qualify your projects under the existing “start construction” deadlines, you now have more time to reap the benefits. You also have the opportunity to extend existing contracts into 2021 or even further. In addition, if some of your projects were falling behind because of COVID-19 delays, they now may be eligible for tax credits after all.
The incentives included in the Act will provide your company with the opportunities to explore more renewable energy projects. These efforts will not only benefit your business but will better serve your clients and contribute to the globe’s battle against climate change.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.