If several recently introduced legislative bills give any indication, Congress has heard the call from solar energy advocates to modify the investment tax credit (ITC).
The ITC, which expires Dec. 31, 2016, currently pays a credit of 30% for qualifying projects. If no changes are made, the credit shrinks to 10% in 2017.
In recent months, both the House and Senate have introduced legislation that not only calls for an ITC extension but also stipulates that solar projects should qualify for the tax incentive based on when they start construction, as opposed to when they are placed into service.
On Feb. 6, Sens. Dean Heller, R-Nev., and Michael Bennett, D-Colo., co-sponsored the Renewable Energy Parity Act of 2014, which would allow developers to qualify for the ITC if projects are under construction before the credit's expiration date, rather than having to wait until those projects are completed and in service.
In a March 11 letter to Senate leadership, Sen. Jeff Merkley, D-Ore., along with 27 U.S. senators, wrote, ‘Many solar projects are already unable to make use of the ITC, even though it expires almost three years from now. That is because completing the planning, development, permitting and construction of larger projects takes many years.’
The senators also note that utility-scale solar energy projects often require four to six years from start to finish, therefore there may not be ample time left before the ITC expires:
‘As a result of this long development cycle, utility-scale developers are already beginning to find it difficult to attract investors willing to invest billions of dollars on projects because of the risk that they will not be completed and placed in service before the end of 2016.’
According to the Solar Energy Industries Association (SEIA), applying the ‘commence construction’ standard across the renewable energy sector would lead to the installation of an additional 4 GW of solar capacity in 2017 and 2018, and would create tens of thousands of additional domestic jobs.
A similar change in definition status was added last year when the production tax credit was retroactively extended on Jan. 2, 2013. The tweak, which allows wind projects to qualify for a $0.023/kWh tax credit for electricity generated from wind farms that started construction before Dec. 31, 2013, is believed to have buttressed wind energy development.
Similar legislation has already been introduced in the House of Representatives.
In August, Rep. Paul Clark, R-Calif., introduced H.R. 3017, the Renewable Energy Construction and Investment Parity Act of 2013, which also extends the energy tax credit to solar energy, fuel cell, microturbine, combined heat and power systems, small wind energy, and thermal energy properties – the construction of which begins before Jan. 1, 2017.
Last November, the House introduced H.R. 2502, The Renewable Energy Parity Act of 2013, which would change the current placed-in-service requirement for the section 48 ITC to a commence-construction standard, allowing for a more efficient utilization of the ITC.
While the ITC push appears to be gaining traction – as evidenced by the support of House and Senate Republicans – sources express doubt that any of the bills by themselves could pass, given the grid-locked Congress.
However, a provision contained in H.R. 3017 provides a ray of hope, explains John Marciano, partner at law firm Chadbourne & Parke, noting that the bill includes a provision to use the sale of crude helium under the Helium Act to fund an ITC extension. He says the ‘pay-for’ makes H.R. 3017 an ideal candidate for passage in comparison to the other pieces of legislation.
Just the same, notes Ken Johnson, SEIA spokesperson, the bills ‘send a clear signal to Congressional leadership that this is an important issue that needs to be addressed.’
