Legislative developments on federal renewable energy tax credits

By Jehmal Terrence Hudson, EnergyBiz.

Now that a government shutdown was temporarily averted, both chambers face significant legislative challenges. Among the legislative challenges are several bills that need action before pending expiration dates. One bill that must be addressed is a tax extenders bill, which may impact the renewable energy industry.

The Energy Policy Act of 1992 created a renewable energy incentive called the production tax credit (PTC). This tax credit, under Section 45 of the Internal Revenue Code, allowed a 2.3 cent/kilowatt-hour income tax credit for producing electricity from renewable energy. Likewise, the investment tax credit (ITC) was created under the Energy Policy Act of 2005. The investment tax credit is allowed under section 48 of the Internal Revenue Code. This tax credit allowed certain solar and wind projects to be eligible for a 30 percent credit for development costs. The investment tax credit is earned at the time the qualifying facility is placed in service. In 2013, Congress extended the PTC that expired, but it was a one-year, retroactive extension that terminated a few weeks later at the end of 2014. On December 31, 2016, the ITC will expire and subsequently, the tax credit provided at the end of a project’s first year of operation will fall to 10 percent for commercial solar investments and to zero for residential solar investments.