On February 17, 2012, the U.S. House of Representatives passed the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630) (the “Act”) by a vote of 293 to 132, with approval by the Senate and signature by President Obama following quickly. The Act extends the 2 percentage point payroll tax cut in the employee share of social security taxes through 2012 as well as extending unemployment benefits, and ensures that physicians receive appropriate reimbursement for treating Medicare payments. Of significant concern to lenders, investors and developers of wind, solar and other renewable energy projects, however, is that the Act fails to extend the renewable energy production tax credit as provided by Section 45 of the Internal Revenue Code.
The renewable energy production tax credit is a 2.2-cent-per-kilowatt hour credit for wind, geothermal, and closed-loop biomass energy technologies, and a 1.1-cent-per-kilowatt hour credit for landfill gas, hydropower, and other eligible technologies. The tax credit for wind energy will expire at the end of 2012 unless Congress takes it up during the lame-duck session following the upcoming presidential election.
The expiration of the production tax credit which also removes the availability of the investment tax credit (claimed in lieu of the production credit) under Code Section 48 and the expiration of the Section 1603 Treasury Department grant program, which allows renewable energy developers to monetize the tax credits and elect a cash grant in lieu of the production tax credit, creates uncertainty in the renewable energy industry. Further, Congressional inaction likely will perpetuate the “boom and bust” cycles as development will likely drop off sharply without an extension of the credit. President Obama’s revenue proposals include extension of the production tax credit for wind facilities and the investment tax credit for wind facility property if placed in service in 2013 and certain other renewable energy facilities placed in service before 2014. Even with the President’s support of a clean energy economy, however, any such action will require Congressional approval.
Developers of wind energy projects should note that time is running out in 2012 to commence wind energy projects -- unless Congress extends the credit, projects must be completed by the end of this year to qualify for the tax credit before it expires in December. Developers will need to secure their equity and debt sources in the very short term in order to proceed on schedule to placement in service by year-end.