US Treasury to Tweak Tax Credit Deadlines for Renewables Projects

A concise three-sentence letter sent by the U.S. Treasury Department on Thursday suggests relief may be on the way for a renewables industry concerned about meeting quickly approaching tax credit deadlines.
 
The letter came in response to a late April appeal from a bipartisan group of senators who asked that the department extend deadlines for solar and wind developers looking to qualify projects for the federal Investment Tax Credit and Production Tax Credit. In the letter, addressed to Republican Sen. Charles Grassley of Iowa, a long-time champion of the U.S. wind industry, Treasury said that it “plans to modify the relevant rules in the near future.”
 
That statement, though short on detail, may give breathing room to developers scrambling to keep projects on track as COVID-19-fueled delays throw schedules into disarray. 
 
Under existing safe-harbor provisions, solar developers must begin construction or invest a certain amount of cash by a specific date in order to qualify projects. Wind developers, meanwhile, had to finish construction by the end of 2020 to secure the full Production Tax Credit. The timelines of both credits put pressure on developers thrown a curveball as the pandemic began shutting down states across the U.S.
 
In their letter, the senators had asked that Treasury offer a "temporary extension of the continuity safe harbor of five years, in lieu of the current four."
 
In a Thursday response to Treasury's letter, the American Council on Renewable Energy said a tweak would be “immensely helpful” to the industry in coping with current conditions.
 
“We are encouraged by the Treasury Department’s letter announcing its intent to modify time-sensitive safe harbor deadlines for renewable energy tax incentives," Gregory Wetstone, the group’s president and CEO, said in a statement. “The renewable sector has been hit hard these last couple of months by supply chain disruptions, shelter-in-place orders and other significant pandemic-related delays."
 
The American Wind Energy Association, an industry group, also applauded the indication that Treasury would modify the deadlines.
 
The renewables industry has been lobbying for the change, which will give developers more time and flexibility in meeting the requirements of the tax credit. The coronavirus has upended some development timelines and led some renewables companies to issue “force majeure" claims.
 
The fix legislators suggested appears to yield the most benefit for the wind industry, by lengthening the amount of time projects that started construction in 2016 and 2017 have to reach completion.
 
Utilities investing in large-scale wind projects also stand to gain from the proposed change. On a Thursday first-quarter earnings call, Xcel Energy CEO Ben Fowke noted that COVID-19 related supply chain disruptions may push the completion date of two of the utility’s wind farm developments in Minnesota from 2020 into 2021. A temporary extension would help those projects qualify for the 100 percent tax credit despite delays.
 
Though Treasury was light on details in the letter, Ravi Manghani, head of solar research at Wood Mackenzie Power & Renewables, said the change could also benefit some solar projects.
 
"While its unclear how narrow or broad the relief action is, a very generous interpretation of the forthcoming guidance could provide an upside to solar projects by extending the safe-harbor period to 2024," said Manghani. "In that scenario, it benefits projects that are targeting to claim greater than 10 percent ITC and correspondingly ease up potential supply constraints in 2023."*
 
The Solar Energy Industries Association, which has pushed for an extension of the investment tax credit that would make it applicable for several additional years, acknowledged that the "very positive" change mostly impacts wind projects. Dan Whitten, the trade group's vice president of public affairs, said SEIA will also continue to pursue a legislative solution on tax credits.
 
"We urge Congress to take a similar approach to developing legislation that unleashes new solar and wind projects," Whitten said in a statement. 
 
In the current climate, that request is a stretch. Winning a fix through Treasury rather than a legislative extension of tax credits cuts Congress out of the equation. And with lawmakers negotiating emergency health provisions and working to stanch economic calamity, the renewables industry has been navigating the thorny issue of making sure its priorities are heard while acknowledging the current emphasis on public health and safety.
 
The full impact of the changes will become clear only when Treasury fleshes out its terse acknowledgment of changes to come. Both the American Wind Energy Association and the American Council on Renewable Energy said they look forward to receiving further details.