The Inflation Reduction Act of 2022 (IRA) will be a game changer for the energy industry. This guide focuses on those issues of particular significance to the energy industry; it is not intended to be comprehensive. Highlights include:

  • Extending the ITC and PTC for projects beginning construction through 2024, and removal of the phasedown.
  • Expanding the PTC to include solar.
  • Expanding the ITC to include energy storage projects.
  • Adopting a base/bonus rate structure for many credits under which the bonus rate requires satisfaction of prevailing wage and apprenticeship requirements.
  • Adopting additional credit amounts for domestic content, energy communities, and low-income communities.
  • Adding direct payment (for nontaxpayers and, in a few cases, taxpayers) and transferability (for taxpayers) in lieu of claiming nonrefundable credits.
  • Extending the Section 45Q credit for carbon capture and sequestration, including a variety of rules that liberalize qualification.
  • Adopting the technology-neutral clean energy ITC (CEITC) and clean energy PTC (CEPTC) for projects placed in service after 2024.
  • Adopting a corporate minimum tax on “book profits,” but with rules allowing depreciation to reduce applicable AMT income and clean energy credits to reduce AMT liability.
  • Adding an ITC and a PTC for clean hydrogen.
  • Adding the advanced manufacturing production credit available for, among other things, components of solar, wind, and battery projects.

Further detail on the IRA is provided below. A summary chart of the provisions in the IRA can be downloaded here.

Continue Reading Navigating the Inflation Reduction Act of 2022: A Practical Guide

On August 7, the Senate passed the Inflation Reduction Act of 2022 (the Act). The House is expected to vote on the legislation on Friday.

The text of an earlier version (the prior version) agreed to by Senator Manchin (D. WV) and Majority Leader Schumer (D. NY) is discussed in our previous update. As revised, pursuant to the consensus reached last week with Senator Sinema (D. AZ), the latest version of the Act contains a handful of negotiated changes to the tax provisions impacting the renewables industry, including those relating to the production tax credit under section 45 (the PTC), the investment tax credit under section 48 (the ITC), the carbon capture credit under section 45Q, the proposed clean electricity production tax credit (the CEPTC), and the proposed clean electricity investment tax credit (the CEITC), as well as the proposed 15% alternative minimum tax for certain corporations (the corporate AMT). Additional changes to the corporate AMT and associated pay-fors were adopted pursuant to proposals by Senators Thune (D. SD) and Warner (D. VA) during the Senate debate on August 7. (Note that these proposals are not included in the version of the Act linked to above; the text of the bill as passed by the Senate is expected shortly.)

Continue Reading Highlights of the Revised Text of the Inflation Reduction Act of 2022

On July 27, Senator Manchin (D-WV) and Majority Leader Schumer (D-NY) reached an agreement to add the Inflation Reduction Act of 2022 (the Act) to the FY 2022 Budget Reconciliation Bill. The Act includes many climate and energy-related provisions from the Build Back Better Act (BBBA). The announcement of the Act came as a huge surprise, given Senator Manchin’s recent public statements that appeared to foreclose any climate and energy provisions in a successor to the BBBA. The legislative text of the Act has been submitted to the parliamentarian for review, and the full Senate is expected to consider it next week.

Continue Reading Inflation Reduction Act Brings Back Energy and Climate Provisions From Build Back Better Act

Ahead of the Congressional Budget Office releasing its cost estimate on the Build Back Better (BBB) Act, Adam Kobos, a partner in the tax practice of Troutman Pepper, joins NPM Managing Editor Jon Berke on the New Project Media Interconnections Podcast.
Continue Reading New Project Media Interconnections Podcast – Episode 19: Adam Kobos, Troutman Pepper

The Biden administration earlier this year released a summary of its plans to invest in infrastructure, which included “direct-pay” options for the investment tax credit (ITC) and production tax credit (PTC) for clean energy generation and storage, as well as the Section 45Q credit for carbon capture and sequestration. The administration subsequently released the Green Book, its general explanations of the budget proposals for the fiscal year 2022, which contained more detailed information about the administration’s tax proposals but did not elaborate on the direct-pay options for the ITC, PTC, and Section 45Q credit. Congress has now passed a $3.5 trillion budget resolution, with proposed budget reconciliation legislation expected to include clean energy incentives. The applicable House and Senate committees will begin drafting the legislation later this month. In the absence of a draft budget reconciliation bill providing details on a direct-pay option, recent legislative proposals introduced in the current Congress can serve as helpful guideposts for considering how the direct-pay option will be structured.[1]

The recent proposals are consistent in many respects. All provide that the taxpayer may elect to be treated as if it has made a payment against income tax for the taxable year, thus making the taxpayer eligible for a refund of such payment if it exceeds its tax liability. The credit for which the taxpayer would otherwise be eligible is reduced, preventing a double benefit. Any payment received is excluded from gross income. Each proposal also provides that the Treasury secretary will determine the manner of making the election. However, the similarities generally end there. Below is a discussion of open questions based on the key variations between the recent proposals.
Continue Reading Direct-Pay Options: A Review of Recent Legislative Proposals

On May 28, 2020, Treasury and the IRS issued Proposed Regulations under Section 45Q of the Code, which provides for a production tax credit for persons who physically or contractually ensure the capture and disposal of qualified carbon oxide. The Proposed Regulations address the requirements for capture and disposal, the use of qualified carbon oxide as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, and the utilization of qualified carbon oxide in a manner that qualifies for the credit. The IRS previously requested comments on issues arising under Section 45Q in Notice 2019-32. On March 9, 2020, the IRS published Revenue Procedure 2020-12, which provides a safe harbor for allocating Section 45Q credits in a partnership flip structure and Notice 2020-12, which provides guidance on when construction of a carbon capture facility or carbon capture equipment has begun.
Continue Reading Treasury and IRS Issue Long-Awaited Proposed Regulations for Section 45Q Production Tax Credits for Qualified Carbon Sequestration

On May 27, 2020, the IRS issued Notice 2020-41, which provides much-anticipated relief for delays caused by the COVID-19 pandemic with respect to the “beginning of construction” requirements for renewable energy projects eligible for the production tax credit (“PTC”) or investment tax credit (“ITC”).
Continue Reading IRS Extends Continuity Safe Harbor and Provides Safe Harbor Delivery Deadline for Renewable Energy Projects

The COVID-19 pandemic has already created considerable uncertainty and has the potential to significantly disrupt renewable energy project EPC and supply chains worldwide.

Wind Energy

The wind industry is particularly susceptible to the effects of this disruption because project completion delays could preclude developers from qualifying for the full value of the production tax credit.

Infocast’s Wind Power Finance & Investment, February 4-6, brings together the industry’s leading developers, investors, lenders, turbine suppliers, EPCs and attorneys to gain valuable insights into industry trends, receive market updates on the finance and investment landscape, and efficiently network with industry leaders.

Troutman Sanders Capital Projects & Infrastructure Section Leader, John Leonti will serve

Infocast’s Projects & Money, January 14-16, brings together the project finance community to connect, share information about upcoming project opportunities, get the latest market intelligence on the trends in the markets and hear the best available perspectives on the financing and deal-making landscape.

Troutman Sanders Capital Projects & Infrastructure Section Leader, John Leonti will serve