On December 18, 2015, President Obama signed the $1.15 trillion omnibus spending agreement, the Consolidated Appropriations Act, 2016 (the “Act”), which provides multi-year extensions of the investment tax credit (“ITC”), the production tax credit (“PTC”), and bonus depreciation. The Act can be found here.
The Act introduces a “beginning of construction” standard for determining when a solar project qualifies for the ITC and extends the applicable sunset dates. Under the Act, solar projects that begin construction before 2020 qualify for the 30% ITC. The ITC is reduced to (i) 26% for solar projects that begin construction during 2020 and (ii) 22% for solar projects that begin construction during 2021. In each case, the solar project must be placed in service before 2024 to qualify for the applicable ITC. Solar projects that begin construction after 2021 or are placed in service after 2023 are eligible for a 10% ITC. The Act does not set forth the criteria for the “beginning of construction” standard, but the industry expects the IRS to follow the guidance applicable to wind facilities.
Wind projects that begin construction before 2017 will qualify for 10 years of the otherwise applicable PTC, which is indexed for inflation and was 2.3 cents per kWh in 2015. The PTC is reduced by (i) 20% for projects that begin construction in 2017, (ii) 40% for projects that begin construction in 2018, and (iii) 60% for projects that begin construction in 2019. Under the Act, there is no PTC for projects that begin construction after 2019.
An owner of a wind project may elect to claim the ITC in lieu of the PTC. Wind projects that begin construction before 2017 will qualify for the 30% ITC. The ITC for wind projects is (i) 24% for projects that begin construction in 2017, (ii) 18% for projects that begin construction in 2018, and (iii) 12% for projects that begin construction in 2019.
Other Renewable Assets
The Act also extends for two years the PTC and ITC for closed loop biomass, open loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic facilities. Under the Act, the PTC or the ITC is available for such facilities that begin construction before 2017.
The Act did not extend the 30% ITC for combined heat and power projects, fuel cells, small wind projects, and certain other technologies. However, Senate Minority Leader Harry Reid (D., NV) added to the Congressional Record a statement that the intent of the agreement reached with Majority Leader Mitch McConnell (R., KY) was to extend the ITC for all eligible technologies, not just solar, and that such oversight would hopefully be addressed in early 2016.
The Act also extended the sunset date for bonus depreciation. Under the Act, otherwise eligible property qualifies for 50% bonus depreciation if placed in service before 2018, 40% bonus depreciation if placed in service in 2018, and 30% bonus depreciation if placed in service in 2019. Under the Act, bonus depreciation is generally not available for property placed in service after 2019.