Renewable energy groups are continuing to push to include solar and wind tax credit extensions and ‘direct pay’ provisions in a nearly $2 trillion coronavirus stimulus bill that failed to move ahead in the U.S. Senate on Monday, after Democrats and Republicans angrily accused each other of undermining the bill by seeking special status for favored industries.
But with Republicans and fossil fuel interests already blaming these clean energy provisions for the bill’s delay, one renewable energy tax expert is suggesting a non-political remedy to the growing uncertainty over wind and solar projects’ federal tax credit status. The idea: Ask the IRS to clarify that existing law protects projects from losing access to those credits, if supply disruptions prevent them from meeting deadlines.
“I actually think the path of least resistance is Treasury and IRS,” Gregory Jenner, an energy partner at Stoel Rives and former head of the U.S. Treasury Department’s Office of Tax Policy, said in a Friday interview.
The idea is simple enough: Convince the IRS to publicly confirm that any delays to renewable energy projects caused by the COVID-19 outbreak will be considered an “excusable disruption” under the regulations for the wind industry production tax credit (PTC) and solar industry investment tax credit (ITC).
This public statement would provide certainty to tax equity investors in wind and solar projects that their returns won’t be threatened by delays beyond their control, Jenner said.
To be clear, this administrative fix wouldn’t provide the broader industry benefits that could come from extending current ITC and PTC deadlines, or converting those credits into direct payments from the federal treasury. But it also wouldn’t add anything to the nearly $2 trillion in payments from the federal government that have weighed down the current stimulus bill and led to its political impasse in the Senate.
“As soon as someone says ‘stimulus bill,’ everyone rushes in to try and get a piece of it,” Jenner told GTM. “The problem is, there are only so many pieces to go around.”
In the past weeks, the Solar Energy Industries Association (SEIA) and the American Wind Energy Association (AWEA) have warned that manufacturing, supply chain and permitting delays could push an uncertain number of projects beyond key deadlines, potentially threatening their financing and completion.
While it’s quite possible that the global disruptions caused by the coronavirus outbreak will meet the legal definition of an event beyond those developers’ control anyway, that may not be enough to keep spooked investors from pulling out of projects, Jenner said. “The investors are asking, ‘how do I know whether the IRS is going to treat this as an excusable disruption?’ They don’t.”
SEIA has spoken to IRS about safe harbor compliance in light of the COVID-19 challenge, a spokesperson confirmed. In contrast, AWEA is not engaged with the IRS on the matter, a spokesperson for that group said.
Wind and solar: different deadlines, different pressures
The deadlines involved differ for wind and solar projects, Jenner explained. For wind projects started before the end of 2016 to receive the full 30-percent PTC credit, the key deadline is to complete construction within four calendar years of their start date, or at the latest, by Dec. 31, 2020, he said.
Wood Mackenzie has already warned that many U.S. wind projects are at risk of missing the 2020 deadline, threatening their reliance on the full credit to pencil out as planned. But “the IRS could simply say, ‘We are going to treat delays attributable to the coronavirus as an excusable disruption, and we will basically say, you get an exemption of this four-year safe harbor.’ That’s all they have to do. They can issue the guidance later on — but if they just say it, the uncertainty goes away.”
For solar projects seeking the full 30-percent investment tax credit (ITC), the problem is “a little different — and a little more immediate,” Jenner said. That’s because the solar ITC’s deadline, which officially expired at the end of 2019, applies to the start date of projects, not the finish date, he said — or, more precisely, three and a half months after the end of 2019, on April 15, 2020.
That’s because projects that didn’t begin by the end of last year can still receive the full 30-percent credit if they’re able to “pay or incur” at least 5 percent of the total cost of the property involved under the ITC’s ‘5 percent safe harbor’ provision, he said.
That requires projects to either take physical possession of at least 5 percent of a project’s solar panels or other equipment by the end of last year — a step many solar developers have already taken — or “to pay for the equipment in 2019, and reasonably expect to take title or delivery within three and a half months of the date of payment.”
For that latter group, the disruptions caused by the coronavirus could prevent that equipment from being delivered in time to meet that deadline. But as Jenner pointed out, “the test is not actual delivery — it’s ‘reasonable expectation’ of title or delivery.’”
Renewable investors 'want certainty'
If the IRS were to clarify that delays caused by the coronavirus outbreak count as an “excusable disruption” to that reasonable expectation, it would solve the uncertainty of whether or not they’ll qualify for the ITC, he said.
In a Friday presentation, John Marciano, chairman of SEIA’s tax and accounting committee, pointed out that the COVID-19 pandemic is a classic example of an unpredictable event that shouldn’t interfere with the ‘reasonable expectation’ part of this equation. Jenner agreed that “legally, this should not be an issue.”
“The question, however, is not what the ultimate answer will be,” but “the certainty of knowing what the answer will be, now,” he said. While legal arguments may win the day months or years from now, “businesses — particularly investors — want certainty.”
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