Last Friday, a divided Congress passed a budget deal that will continue to support the growth and development while spurring competition in the renewable energy market. President Barack Obama signed into law the Consolidated Appropriates Act, 2016 [Act] which extends and modifies investment tax credits for renewable energy developers and projects before phasing these credits out. The changes to Production Tax Credit (PTC) and Investment Tax Credit (ITC) are summarized below:
Production Tax Credit (PTC): This credit was extended for new wind power development projects with construction start dates beginning by December 2016 (100%). Projects beginning in 2017 would get 80% of the PTC, those that began in 2018 would get 60%, and during 2019 would get 40%. The PTC is currently worth $23 per megawatt-hour of electricity produced in the first 10 years.
Investment Tax Credit (ITC): This credit (affects solar projects) will stay in place at 30% tax credit through 2019. This credit however winds down to 10% during the following four years.
The Act was received warmly by the renewable energy sector especially the solar and wind industries. It will continue to give developers and investors a predictable regulatory environment in which to begin construction, continue development, and price wind, solar, and other renewable power projects. The Act also helps buyers of large scale renewables, who purchase them through Power Purchase Agreements (PPAs) because it will continue to foster a favorable pricing environment. This is on top of incentivizing continued development in the renewables sector which keeps prices down.
These tax extensions are expected to increase both investment and development across the renewables sector with solar and wind being the largest beneficiaries. But even lesser known renewable energy properties like geothermal and biomass facilities will benefit. Large scale buyers will definitely look to take advantage of the extended tax credits through PPAs and RECs (renewable energy credits). The Act will also extend bonus depreciation allowances across these projects. The only bad news from this Act can be seen in the winding down and phasing out of these credits, signaling that Congress may not be so inclined to renew them the next time the issue takes the floor.
