On December 27, 2020, the Consolidated Appropriations Act, 2021 (H.R. 133) (“Appropriations Act”) became law. In addition to measures to promote carbon capture technology, this massive government spending bill and stimulus package includes significant tax and other incentives for renewable energy projects through the incorporated Taxpayer Certainty and Disaster Tax Relief Act of 2020 (“Taxpayer Act”) and the Energy Act of 2020 (“Energy Act”).
Extension of Renewable Energy Tax Credits
The Taxpayer Act (Division EE of the Appropriations Act) includes a number of renewable energy provisions. With respect to wind and solar power facilities, the Taxpayer Act extended several time-based requirements or amount limitations pertaining to the production tax credit (PTC) under Section 45 of the Internal Revenue Code (the “Code”) and the investment tax credit (ITC) under Section 48 of the Code.
Wind Power Facilities. The Taxpayer Act extends the 60% PTC for eligible wind power facilities that “begin construction” after December 31, 2019, and prior to January 1, 2022 (extended from January 1, 2021). PTCs at 60% of the full rate are currently $15 a MWh. The Taxpayer Act makes corresponding one-year eligibility extension changes to the ITC to permit wind power facilities beginning construction prior to January 1, 2022 (extended from January 1, 2021) to elect to apply 60% of the ITC (i.e., 18% of eligible tax basis) in lieu of the PTC.
In addition, the Taxpayer Act creates new extended eligibility rules for applying the ITC to offshore wind facilities. These rules provide that a 30% ITC applies to a “qualified offshore wind facility” (an otherwise PTC/ITC eligible wind facility located in the inland navigable waters of the United States or in the coastal waters of the United States) that begins construction prior to January 1, 2026. Consistent with the PTC phaseout, offshore wind projects will not have the option to claim PTCs on the electricity output, instead of an ITC, on projects that start construction after 2021.
Solar Power Facilities. For eligible solar power facilities, the Taxpayer Act extends the ITC phasedown schedule by two years, such that the 26% ITC (applied to eligible tax basis) now applies to property that begins construction after December 31, 2019, and prior to January 1, 2023 (extended from January 1, 2021), and the 22% ITC now applies to property that begins construction after December 31, 2022, and prior to January 1, 2024 (extended from January 1, 2022). Solar power facilities that begin construction after 2023 remain eligible for a 10% ITC. The placed-in-service deadline for otherwise increased ITC percentage amounts to be reduced to 10% is also extended two years from January 1, 2024, to January 1, 2026.
Incentives for Renewable Energy R&D and Development on Public Lands
The Energy Act (Division Z of the Appropriations Act) contains the first major update to renewable energy policies for federal public lands in more than a decade. Most significant, by 2025, the Secretary of the Interior (“Secretary”) must issue permits to authorize production of at least 25 GW of electricity from wind, solar, and geothermal energy projects on public lands. See Title III, Subtitle B, Sec. 3104. Additionally, by September 1, 2022, the Secretary must establish national goals for renewable energy production on public lands. Id.
The Energy Act also authorizes the Secretary to reduce acreage rental rates, capacity fees, and other recurring annual fees on public lands to make existing and new wind and solar projects more attractive. See Title III, Subtitle B, Sec. 3103. To use this authority, the Secretary must either determine that existing rates and fees exceed fair market value, impose economic hardships, limit commercial interest, or are not competitively priced compared to non-public lands, or the Secretary must determine that the reduced rates or fees are necessary to promote the greatest use of wind and solar energy resources. Id.
The Energy Act also seeks to streamline federal permitting for geothermal, solar, and wind energy projects on public lands by requiring the Secretary to establish a national Renewable Energy Coordination Office and state, district, or field offices, as appropriate. See Sec. 3102. The Energy Act further directs the Secretary to enter into a memorandum of understanding with the Secretary of Agriculture, the Administrator of the Environmental Protection Agency, and the Secretary of Defense, as well as state governors and tribal leaders, if appropriate, to improve permit coordination. Id.
In addition to encouraging renewable energy projects on public lands through targets and new incentives, the Energy Act generally expands and incentivizes carbon capture and storage and carbon removal technologies, energy storage, and grid modernization, supports nuclear energy research, and establishes new energy efficiency programs for schools and federal buildings. Title III, Subtitle A reauthorizes the Department of Energy’s research, development, demonstration, and commercial application (RDD&CA) programs for hydropower research and development, geothermal energy, wind energy, solar energy, and extends production incentives for hydroelectric production. The RDD&CA programs for wind and solar include a focus on extending the life of facilities, decommissioning, and recycling and reusing facility materials. Additionally, by September 1, 2022, the Secretary of Energy must submit a report to Congress on the national strategic vision, progress, and goals of the wind energy and solar energy programs, including market and manufacturing assessments. See Secs. 3003(b)(6) (wind), 3004(b)(6) (solar).