Treasury, IRS preparing guidance to clarify renewable credit eligibility

Source: Nick Juliano, E&E reporter • Posted: Wednesday, January 16, 2013

The Treasury Department and IRS are preparing joint guidance to flesh out the implications of a significant tweak to a key renewable energy tax cut that was signed into law this month, an official said yesterday.

The timing of the guidance on the new eligibility requirements for the production tax cut remains unclear. Treasury and IRS need to determine how exactly to define when wind and other renewable energy developers can claim the credit after Congress approved a change to its eligibility requirements.

In extending the PTC through the end of the year, as part of the broader “fiscal cliff” deal earlier this month, lawmakers extended the credit to projects that start construction by Dec. 31, 2013, rather than requiring them to be “in service” by that date, as had previously been required.

“We’re aware of the need for guidance, and it’s forthcoming,” said the Treasury official, who requested anonymity and declined to provide additional information on its timing or contents, aside from clarifying that it would be a joint product of Treasury and IRS.

Congressional aides and industry sources say they expect the guidelines to largely mirror those Treasury outlined for the clean energy grant program created in the 2009 stimulus law, known as 1603. That program offered a 30 percent grant in lieu of an investment tax credit for projects whose construction started by the end of 2011.

“The qualification rule for PTC will definitely be more involved than turning over a shovel of dirt. For example, in the Section 1603 program, a certain percent of total project expenditures must be made to satisfy it,” said a Senate aide familiar with the legislation. “That’s the type of standard to expect.”

Treasury generally required project developers to incur 5 percent of the costs of the project by the 1603 deadline to achieve “safe harbor” status, allowing them to be eligible for the grant.

The changed eligibility requirements were first outlined in a “tax extenders” bill passed last summer by the Senate Finance Committee that was included verbatim in this month’s fiscal cliff deal. Wind developers, who were facing an expiration of the credit at the end of last year, said changing the requirements would be necessary to account for the 18 months it generally takes to get a project up and running. Without the shift, they said, extending the credit for just a year would do little to encourage new projects.

Other industries that have the PTC through the end of this year — geothermal, waste-to-energy, biomass and hydropower — also lobbied for the language change, arguing that it would facilitate more activity in their industries, where projects can take several years to build.

Guidance from Treasury will send an important signal to renewable companies to assure them that support from the PTC will be available for projects that won’t be complete by the end of this year.

“The importance of it is that it sends the signal, not only to markets but to the companies that are making [capital expenditure] allocations, that the program is going to be around for more than a year,” said one lobbyist who represents several clients in the wind industry. “You’ve got to know the benefit is going to be there when you start competing for dollars inside a large corporation.”