Extension of renewable energy credits an uncertain gift.

• Author: Pearson, Kevin T.
• Position: Legal Speak

Congress' passage of the Taxpayer Relief Act of 2012 on New Year's Day not only temporarily avoided the so-called fiscal cliff, it also included eagerly anticipated extensions and modifications of tax incentives for the energy industry. But details of how to qualify for those incentives are still uncertain.

Two alternative credits against federal income tax are available for certain enumerated types of renewable energy projects: a credit based on the amount of electricity produced by a qualified facility (known as the production tax credit or PTC) and a credit based on the cost of a qualified facility (known as the investment tax credit or ITC). In addition, in 2009 Congress introduced a program under which owners of certain facilities that otherwise qualified for the ITC could elect instead to receive a cash grant--known as the Section 1603 Grant--from the U.S. Department of the Treasury. Qualification for these incentives can have a dramatic impact on the economic viability of a renewable energy project and can make the difference between a project that is financeable and one that is not.

The PTC and ITC have been scheduled to expire a number of different times, and the PTC has in fact expired, but both have ultimately been extended or reinstated. Each of those extensions prior to the Act involved an extension of the date a project was required to be "placed in service" (i.e., completed) to qualify for the credit. The uncertainty as to whether and how Congress will continue to extend these incentives, along with uncertainties regarding the timeframe in which construction of a particular project could be completed, has helped create a great deal of volatility in the market for renewable energy equipment and in renewable energy project financing markets.

Before the Act, the status of the various incentives differed depending on the type of facility and the specific incentive involved. To qualify for the PTC, a large wind project must have been placed in service by the end of 2012. Other types of PTC-eligible projects (including biomass, geothermal, landfill gas, trash, refined coal, qualified hydropower, marine and hydrokinetic energy, and other facilities) must have been placed in service by the end of 2013. To qualify for the ITC, a solar facility must be placed in service by the end of 2016. If a project otherwise qualified for the PTC, an election could be made to claim the ITC instead of the PTC. To qualify for the Section 1603 Grant...