Quick Fix Needed in Tax Credit Application for Several Clean Energy Technologies

With considerable fanfare last month, Congress approved legislation that extended – and in a few cases made permanent – more than 50 business tax credits. Of particular note to the renewable energy community was the extension of tax credits for wind and solar projects for an unprecedented five years.

The provisions were adopted just as lawmakers were nearing an end to the first term of the 114th Congress. Now that the House and Senate are back in session for the second term, advocates are hopeful that lawmakers will address tax credit extensions that were not as generous to some sources of renewable energy as they were for others.

On Dec. 21, President Obama signed into law the bill extending a wind production tax credit (PTC) of 2.3 cents per kilowatt hour (kWh), which had most recently expired at the end of 2014. Also extended was a 30-percent investment tax credit (ITC) for solar facilities and other sources of energy that was set to expire at the end of next year. However, significant caveats were included with these credit extensions as a condition of passage.

Under the legislation, any wind facility that begins construction before 2020 is eligible for a credit. The full credit is applicable to any wind facility built that went under construction last year and is set to begin this year. However, the credit will drop by 20 percent if the facility begins construction in 2017, 40 percent if it begins in 2018 and 60 percent if the facility starts going up in 2019. The credit expires at the end of 2019.

Utility-scale solar systems that begin construction before 2020 are eligible for the full 30-percent ITC, which then begins to phase out over the next three years. The ITC would drop to 26 percent for utility-scale systems begun in 2020, and then to 22 percent for those started in 2021. Utility-scale systems that begin construction after 2021 – or if construction begins before 2022 but the facility is not in service before 2024 – would see the credit drop to 10 percent. The same phase-out rate will apply to tax credits for residential solar systems, though they will end after 2021.

There is concern over the measure’s failure to include a long-term extension for small wind projects, both the business and residential credits. Small wind is “farm friendly” and usually involves one or two turbines “behind the meter” on a farm, ranch or rural residence. The 30-percent investment credit makes rural small wind projects go, whereas the PTC does not.

Other energy technologies were omitted from long-term ITC eligibility under the legislation, including combined heat and power systems, geothermal energy and fuel cells.

The omissions were unfortunate. However, there seems to be strong bi-partisan support to fix the issue so that farm-friendly small scale wind and other clean energy technologies are afforded similar (if not stronger) support as solar has received. Although an amendment that would have added the energy sources back into the bill was turned down by the House Rules Committee late last year, the chairman of the House Ways and Means Committee, which has jurisdiction over the tax credits, indicated his panel would “revisit” the issue this year.

To put this issue into another context, fossil fuels, including natural gas, coal and oil, have retained their permanent credits and other tax benefits. Meanwhile, even though credits were extended in many cases, renewables continue to get uneven treatment, given the “phase downs” this Congress is applying to them. Moving to giving these renewable resources greater certainty at least addresses, if only slightly, the lack of a level playing field in the energy market.

Given the vast benefits of renewable energy in reducing carbon emissions and addressing climate change, every advantage available must be extended to all power sources that can improve our environment – not to mention boost our economy. That means lawmakers should work quickly to correct last month’s act of “omission” and authorize for five years the tax credits for those renewable energy projects that last month were only granted two year extensions.

The benefits of solar, wind and other sources that enable distributed energy generation (DEG) have been recognized for years. The Federal Energy Regulatory Commission has for nearly a decade cited DEG for its ability to increase electric system reliability, reduce peak power requirements that can put heavy strain on centralized systems, improve the quality and reliance of power, and improve our energy security by reducing vulnerability to infrastructure disruption. We urge lawmakers to recognize these benefits of DEG and move now to take full advantage of them.

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