Offshore wind, renewable energy figures prominently in US coronavirus stimulus package

On Dec 21, the US Congress passed a massive $900 billion Coronavirus relief package bundled with a $1.4 trillion government spending bill to help with the economic fallout from the global pandemic. President Trump, after last-minute deliberations, signed the bill into law on Dec 27.

The Consolidated Appropriations Act,2021 addresses a wide array of sectors from extending unemployment insurance to small business loans, the omnibus spending bill also carves out provisions to extend deadlines for developers of terrestrial wind, solar, offshore wind, geothermal, biomass, and other renewable energy projects to qualify for federal tax credits. It is the most significant energy bill passed in the US since the Obama-era American Recovery and Reinvestment Act of 2009.

Specifically, the legislation extends deadlines for developers of terrestrial wind, solar, offshore wind, geothermal, biomass, and other renewable energy projects to qualify for federal tax credits.

Here’s how the bill impacts renewable energy:

Offshore wind. Among the biggest beneficiaries of the massive stimulus package is offshore wind.

Typically, developers have the option to elect the production tax credit (PTC) or the investment tax credit (ITC). Given the high cost of construction – relative to land-based wind farms – developers typically elect the ITC as opposed to the PTC, which pays a credit per kWh of electricity generated. The legislation extends for five years a 30% ITC for offshore wind projects that begin construction as late as 2025.

Importantly – unlike other tax credits like the PTC and ITC for solar – the ITC in offshore wind will not diminish in value over time and will remain at 30% during the eligibility period.

Given the complexity and long lead time involved in permitting, procurement and financing for offshore wind power projects, the five-year extension should enhance the financial viability of US offshore wind.

Terrestrial wind. The legislation extends PTC eligibility by one year at the current 60% level for wind projects that start construction before the end of 2021 – meaning the PTC provides for a credit of $0.015/kWh to wind project owners for energy produced during the first 10 years after a project is placed into service.

Given the complexities of the US tax law, developers must meet specific conditions to qualify – namely beginning construction before the end of 2020 and achieving commercial operation starts by 2024.

Solar: For solar projects that begin construction in 2020, 2021 or 2022, the new law says that developers of solar projects will qualify for a 26% ITC, rather than 22%.

Solar projects that begin construction in 2023 will qualify for a 22% ITC.  For any solar project to qualify for more than a 10% ITC, it must be in service before 2026, as opposed than before 2024.

Aside from renewable energy technologies, the legislation carves out provisions for energy efficiency programs in data centers, schools and federal buildings. Further, the legislation sets a goal that federal lands produce 25 GW of electricity from wind, solar and geothermal sources by 2025.

To read the full text of the 5,593-page document, click here.

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