On Dec. 16, 2014, the Senate passed legislation to extend numerous expired tax incentives − including the expired production tax credit (PTC) and 50-percent bonus depreciation − through Dec. 31, 2014. The bill, H.R. 5771, was presented for President Obama’s signature on Dec. 19, 2014.
Previously, the PTC expired on Dec. 31, 2013, resulting in a significant slowdown in the development of new wind projects in 2014. Wind projects rely heavily on the PTC to offset capital costs. The passage of the extenders bill so late in the year, however, will provide very little time for developers to react and secure the PTC for new renewable energy projects in 2014. It also puts pressure back on Congress for another extension in 2015.
The PTC provides certain renewable energy electricity producing projects (including wind, geothermal, biomass and municipal solid waste, such as biomethane) with a tax credit of approximately $0.023/kWh for energy generated and sold to a third party. The tax credit can be claimed for the 10-year period following commercial operation of the project and often is used in tax equity transactions to offset some of the capital costs of constructing qualifying renewable energy resources.
To qualify a renewable energy facility for the PTC in 2014, a developer must have “begun construction" before Dec. 31, 2014, which often requires breaking ground for construction at the project site. There is also a safe harbor when at least 5 percent of the project’s construction costs are incurred and paid before year-end.