IRS releases guidance on expanded PTC eligibility

Source: Nick Juliano, E&E reporter • Posted: Tuesday, April 16, 2013

Wind and other eligible renewable energy developers will be able to claim the production tax credit as long as they spend at least 5 percent of a project’s costs by the end of this year, the Internal Revenue Service said today in eagerly anticipated guidelines.

The document clarifies an expansion of the PTC’s eligibility that Congress enacted in January, as it extended the credit through the end of this year for wind. Rather than needing to have facilities in service before the credit expires, developers have to commence construction by Dec. 31 to claim the 2.3-cents-per-kilowatt-hour subsidy.

The change in the law drew cheers from the wind, geothermal, biomass, waste-to-energy and hydropower industries even as their members were anxious to see more detail on how the law would be applied. The IRS today provided that detail.

In its guidance document, the IRS establishes requirements similar to those it used in administering the so-called 1603 clean energy grant program, which was established as part of the 2009 stimulus law and had a similar commence-construction eligibility trigger.

The IRS says developers can claim the PTC in two ways: by beginning “physical work of a significant nature” or investing 5 percent to claim “safe harbor status.”

Physical work can include activities such as excavating areas or pouring concrete foundations for wind machines, manufacturing turbines or towers that would be assembled on site, or building access roads needed to service and maintain the turbines, according to the guidance. It does not include preliminary activities such as work on buildings, transmission lines or roads to a project site.

The safe harbor provision applies for projects where 5 percent of the final costs are incurred by the end of this year. In the case of cost overruns, the PTC could be claimed on a smaller piece of the project in certain instances — for example, on four turbines of a five-turbine wind farm. In some cases, a cost overrun would negate a developer’s ability to claim the credit at all, for example on a closed-loop biomass facility that cannot be broken down into smaller pieces, according to the guidance.

The IRS guidance does not establish a deadline by which a project has to be completed once construction has started or safe harbor status has been claimed. But in both cases, it requires developers to maintain “continuous” efforts to bring the project online.