The COVID-19 pandemic continues to wreak havoc on a host of industries worldwide and the renewable energy market is not exempt. In the U.S., the renewable market is likely to be impacted by supply chain and construction disruptions caused by the coronavirus spread. These delays may further negatively impact existing power purchase agreements and the viability of federal tax credits critical to completion of construction and timely delivery of power.
Internal Revenue Service (IRS) rules dictate the value of production tax credits (PTCs) or investment tax credits (ITCs) for which a project may qualify, to vary based upon the construction commencement date. The looming uncertainty of construction completion and or energy production itself against the backdrop of reduced demand, further complicates the future of renewable energy in the U.S.
Earlier today the United States Senate reached agreement on a $2 trillion coronavirus stimulus bill. However, that bill excludes both tax credit extensions and direct pay provisions that the renewable industry had sought to help mitigate against COVID-19- induced disruptions.
The current political climate and rancor between advocates for the fossil fuel and renewable energy industries does not make compromises likely at the moment. However, renewable energy advocates are considering another alternative — namely to simply request clarification from the IRS and/or the U.S. Treasury, that current law protects the viability of those tax credits and that such delays may be considered “excusable disruptions.”
If achievable, such a pronouncement might calm the market for tax equity investors and lenders. Without clarification, whether administrative or legislative, uncertainty will continue to loom.