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Key Takeaways | Technology-Neutral Tax Credits: When Will ITC and PTC Disappear?

By Heather Cooper and Joel A. Hugenberger on Oct 7, 2022
Posted In Natural Gas, Project Development and Finance, Renewables, Tax

During this webinar, McDermott Partners Heather Cooper and Joel Hugenberger hosted Jay Chang, managing director at CCA Group, for a discussion on how the new technology-neutral tax credit will work and how it may impact the industry moving forward.

Below are key takeaways from the discussion:

1. The newly introduced technology-neutral tax credits (for both the investment tax credit (ITC) and production tax credit (PTC) regimes) are unique in that they can be applied to any facility producing energy so long as the greenhouse gas emissions from said facility are net zero. At this time, emission classes have not yet been established by the Internal Revenue Service (IRS), although carbon dioxide capture can be taken into account for calculating the emissions rate under the new technology-neutral tax credit regime. (More guidance surrounding this topic is expected before 2025.) However, it is expected that traditional renewables facilities (e., solar and wind) will be treated as having net zero emissions. Nonetheless, all technologies will have the option to select either ITCs or PTCs and not be restricted by their respective industry (as was previously the case).

2. Generally, the technology-neutral tax credits will follow the ITC and PTC mechanism; there will be 30% ITCs and 100% PTCs, each with potential adders or penalties against each, respectively. The technology-neutral tax credits will also be subject to identical wage and apprenticeship rules that apply to the current tax credits in connection with PTCs and ITCs.

3. Technology-neutral ITCs and PTCs are applicable to projects placed in service after 2024 (e., on or after January 1, 2025). The old ITC and PTC regimes are set to apply to projects that begin construction prior to or during the year 2024. For those projects that overlap between both periods, it is unclear as to which regime would apply. Taxpayers are still awaiting additional guidance from the IRS concerning this inquiry.

4. Technology-neutral PTCs are available to taxpayers without them having to provide evidence of a sale of output. Now, so long as the output is verified by a third-party meter reader, a taxpayer can take advantage of these new credits. Additionally, taxpayers can now claim these technology-neutral tax credits for new additions to existing facilities (which could be particularly beneficial for facilities that might be upsized post-2024.)

5. To note, assuming greenhouse gas emissions reach a target of 25% of the current 2022 rates, technology-neutral ITCs and PTCs will begin to be phased out starting in 2034. Projects beginning construction in 2034 will be entitled to 75% of tax credits. In the following year, projects will be entitled to 50% of tax credits, with projects being entitled to 0% of tax credits in 2036. However, if the proposed greenhouse gas emissions goal is not reached by 2034, this proposed timeline will be extended.

6. In the past, renewable technologies have had to quickly [...]

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Key Takeaways | The Energy Market in 2021: Legislative Update on Renewable Energy Tax Incentive

By Philip Tingle and Heather Cooper on May 20, 2021
Posted In Renewables, Tax

The energy market has undergone significant change in the past 12 months, with even more on the horizon. Our webinar series explores how these changes have shaped—and will continue to impact—the energy industry, including discussions of what’s to come.

Our latest webinar featured McDermott partners Philip Tingle and Heather Cooper and Carol Wuerffel, Senior Director, Tax at Ameren.

Below are key takeaways from the webinar:

Tech Neutral Credit. The Clean Energy for America Act introduced by Senator Ron Wyden (D-OR) would replace existing renewable energy incentives with technology-neutral tax investment and production credits for facilities with zero net or net negative carbon emissions. In coordination with the Environmental Protection Agency, the US Department of the Treasury would be responsible for promulgating regulations specifying qualifying technologies. The credit would be provided to partnerships and not individual partners for renewable investments made by pass-through entities.
Direct Pay. In early 2021, House Democrats reintroduced the Growing Renewable Energy and Efficiency Now (GREEN) Act. In addition to extending and expanding the existing investment tax credit (ITC) and production tax credit (PTC), the GREEN Act would permit taxpayers to elect to claim 85% of the expanded ITC and PTC amounts as a refundable credit, even if they do not have sufficient tax liabilities to otherwise use the credits. The Wyden bill likewise would offer a direct pay election but without any discount against the tax credit. The timing of payments under the refundable credit may impact whether developers will shift from current tax-equity structures. If a developer must file a return and wait to resolve any examinations or other ongoing proceedings to receive the benefit, the refundability could be of limited value.
Net Zero 2050. US President Joe Biden has set an aggressive climate goal of reducing greenhouse gas emissions by at least 50% below 2005 levels by 2030 and to net zero by 2050. Developers and utilities need additional certainty around the scheduled phaseouts in the ITC and PTC in order to build renewable resources to meet climate goals. While the White House has yet to back a specific package of renewable tax incentives, the proposals introduced by congressional Democrats are a likely starting place for negotiations.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.

Alta Wind: Federal Circuit Reverses Trial Court and Kicks Case Back to Answer Primary Issue

By Kevin Spencer and Philip Tingle on Aug 6, 2018
Posted In Renewables, Tax

On July 27, 2018, the US Court of Appeals for the Federal Circuit in Alta Wind v. United States, reversed and remanded what had been a resounding victory for renewable energy. The US Court of Federal Claims had ruled that the plaintiff was entitled to claim a Section 1603 cash grant on the total amount paid for wind energy assets, including the value of certain power purchase agreements (PPAs).

We have reported on the Alta Wind case several times in the past two years:

Government Appeal of Alta Wind Supports Decision to File Suit Now

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Act Now To Preserve Your Section 1603 Grant

SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace

In reversing the trial court, the appellate court failed to answer the substantive question of whether a PPA that is part of the sale of a renewable energy facility is creditable for purposes of the Section 1603 cash grant.

Trial Court Decision

The Court of Federal Claims awarded the plaintiff damages of more than $206 million with respect to the cash grant under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the Section 1603 Grant). The court held that the government had underpaid the plaintiff its Section 1603 Grants arising from the development and purchase of large wind facilities when it refused to include the value of certain PPAs in the plaintiffs’ eligible basis for the cash grants. The trial court rejected the government’s argument that the plaintiffs’ basis was limited solely to development and construction costs. Instead, the court agreed with the plaintiffs that the arm’s-length purchase price of the projects prior to their placed-in-service date informed the projects’ creditable value. The court also determined that the PPAs specific to the wind facilities should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This meant that any value associated with the PPAs would be creditable for purposes of the Section 1603 Grant.

Federal Circuit Reverses and Remands

The government appealed its loss to the Federal Circuit. In its opinion, the Federal Circuit reversed the trial court’s decision, and remanded the case back to the trial court with instructions. The Federal Circuit held that the purchase of the wind facilities should be properly treated as “applicable asset acquisitions” for purposes of Internal Revenue Code (IRC) section 1060, and the purchase prices must be allocated using the so-called “residual method.” The residual method requires a taxpayer to allocate the purchase price among seven categories. The purpose of the allocation is to discern what amount of a purchase price should be ascribed to each category of assets, which may have significance for other parts of the IRC. For example, if the purchase price includes depreciable [...]

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Government Appeal of Alta Wind Supports Decision to File Suit Now

By Joshua D. Rogaczewski, Kevin Spencer and Philip Tingle on Jan 31, 2017
Posted In Renewables, Tax

As you may know, several taxpayers have sued the federal government because they believe they were underpaid under the Section 1603 grant program. Indeed, the taxpayer in the Alta Wind case was successful in convincing the court that the government had inappropriately reduced the amount of its 1603 grant by approximately $200 million. For more information about the Alta Wind case, see our previous On the Subject, “Act Now to Preserve Your Section 1603 Grant.” We have been following these cases, and believe that the grant applicants have strong arguments in their favor. As expected, right before the New Year, the US government appealed the Alta Wind case, asking the US Court of Appeals for the Federal Circuit to overturn that decision.

Taxpayers with the same or similar legal issue need to make a decision of what to do. We strongly recommend that you file your case immediately against the government seeking redress for the inappropriate reduction in the amount of the 1603 grant that the government paid to you. If you file suit, we expect the court will stay your case pending the outcome of the Alta Wind appeal. Nevertheless, we believe that this is the best course of action for the reasons outlined below:

First, filing suit now will toll the statute of limitations on your claims. Every case must be filed within the statute of limitations. If you do not file your suit within the statute of limitations, you will not be permitted to file suit in the future. Appeals can take years to resolve. If you wait until the court rules on the Alta Wind appeal you risk losing your claim because the statute of limitations may have expired by the time that case is fully decided. Filing your claim now will stop the limitations period from running, preserving your ability to have your claims heard by the court.
Second, we expect that the appeals court will affirm the taxpayer’s win in Alta Wind. If you have a pending case in court when that occurs, you will be in a better position than those taxpayers who wait to file suit because the government will have to address your case immediately after the appeal is decided and the stay is lifted. Moreover, filing suit and “getting in line” early will be especially important if the government tries to settle the claims against it because you will be able to argue that you should be entitled to a greater percentage of your claim than if you had filed after the appellate court rules against the government.
Lastly, filing suit now will increase your ability to withstand any attempts by the US Department of the Treasury to retroactively change the 1603 grant program. The new administration has taken over, and it is possible that it could implement rules for the Section 1603 grant program that are harmful to your claim and try to implement them retroactively. That is an issue that would have to be litigated, but your argument would [...]

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