President Donald Trump’s administration has given onshore wind developers who started construction of an estimated 20GW or more projects in 2016 or 2017 an extra year to complete and qualify them for federal production tax credits (PTCs) at full or 80% value, in recognition of delays from Covid-19 impacts to supply chains and workforces.

Developers will now have five years, instead of four years, to complete construction without having to prove continuous work on the projects after construction began, the Internal Revenue Service, the US tax authority, said in Notice 2020-41 issued on Wednesday.

About 15GW of wind farms that began construction in 2016 had to be completed by the end of this year to qualify for 100% PTC ($24/MWh over 10 years) while others that started in 2017 have until end of 2021 for eligibility at 80% PTC, or $19.20/MWh.

"The IRS recognizes that Covid-19 has caused industry-wide delays in the supply chain for components needed to complete renewable energy projects otherwise eligible for important tax credits," said a statement from the agency. It added that the notice seeks to “provide tax relief to affected taxpayers".

Also benefitting from the extended deadline for tax relief are biomass, geothermal, incremental hydroelectric, hydrokinetic, landfill gas and waste-to-energy projects that began construction in 2016 or 2017.

The administration’s move is a major boost for the wind industry whose national trade group, the American Wind Energy Association (AWEA), has estimated that coronavirus impacts have put 25 GW in project investments worth $35bn at risk, plus 35,000 of 120,000 industry jobs.

A recent report found that since the pandemic began, nearly 600,000 clean energy jobs including more than 70,000 in renewable energy, have been lost .

Until now, wind developers who have been unable to complete projects within four years after construction started have the often labourious, time-consuming and potentially tricky task of proving to the IRS that they worked continuously on them in order to be allowed more time for PTC eligibility.

Moreover, providers of tax equity, a major source of industry funding, have not yet committed to finance projects that take longer than four years, according to Keith Martin, co-head of US projects at law firm Norton Rose Fulbright, and an expert on renewable energy tax issues.

That was a growing concern as some projects pre-qualified for 100% PTC faced missing their end-of-year deadline for completion of construction as Covid-19 pressures intensified.

The IRS is part of the Department of Treasury, which did not make the PTC refundable as the industry wanted. That would have circumvented the need for projects to obtain tax equity.

Developers usually start construction by “incurring” a t least 5% of the project cost before the deadline by taking delivery or title to equipment such as turbines or transformers. Or by paying at yearend and taking 105 days after payment. Martin notes that many tax equity investors prefer delivery.

That has become problematic for smaller developers because of coronavirus-related impacts. They lack the size, In its notice, the IRS will now allow a developer who paid for equipment before 20 September last year to count that payment as a cost incurred last year for purposes of starting construction under the 5% test as long as the equipment is delivered or title passes by 15 October, 2020, according to Martin.

This part of the notice also applies to solar projects suffering supply chain difficulties that paid for panels and other equipment late last year and expected to take delivery 105 days after payment.

No offshore wind tax relief

The IRS notice does not provide offshore wind projects with any special tax credit relief. Last August, the administration froze permitting along the east coast to conduct additional environmental studies.

If any projects can begin construction this year, they could be eligible for the federal investment tax credit (ITC) at 18% level in lieu of the PTC.

The ITC is a one-time, up-front credit for capital expenditures that works particularly well for offshore wind projects that require larger investments and longer development cycles than their onshore counterparts.

Wind

US wind boost as Trump extends project tax credit deadlines over Covid