This is an update to our previous alert on IRS tax incentives for renewable energy projects. In light of the current pandemic, wind and solar developers were faced with industry-wide delays in the supply chain and construction as well as potentially losing their production tax credit (PTC) or investment tax credit (ITC) if certain deadlines were not extended by the IRS. On May 27, 2020, the IRS issued a notice modifying its guidance to further extend the “continuity safe harbor” and its beginning-of-construction requirement to qualify for both the PTC for renewable energy facilities under section 45 of the Internal Revenue Code and the ITC for energy property under section 48.
For any qualified facility or construction property that began construction in 2016 or 2017, the modified guidance adds an extra year to the four-year continuity safe harbor for a facility to be placed into service and be deemed to have had continuous construction to qualify for the credits. The guidance also grants extensions to renewable projects attempting to meet the test for beginning construction this year to claim the PTC or ITC either by commencing physical work of a significant nature or paying or incurring 5 percent or more of the total cost of the facility. Developers who make good-faith payments in an effort to start construction within the three-and-a-half month safe harbor window but do not receive key materials because of COVID-19-related delays can still claim to have started construction for the purpose of the tax credits.
Our regulatory, renewable energy, and tax attorneys will continue to monitor any developments regarding the PTC and ITC and will issue subsequent legal alerts.
If you have any questions regarding this or any other issue regarding renewable energy development, please contact Brenda Colella, Regulatory Practice Area co-chair and co-leader of the Renewable Energy and Energy Market Teams, at bcolella@barclaydamon.com; Ekin Senlet, partner, at esenlet@barclaydamon.com; or Angela Sicker, law clerk, at asicker@barclaydamon.com.