Tax policy

Issues

Tax policy has been a cost-effective driver that prompts private investment, bolsters the economy, and creates new jobs. Federal clean energy tax credits complement state-level RPS requirements, and American taxpayers have seen strong returns on these investments.

Federal incentives can spur innovation and lower costs, resulting in more affordable clean energy.

Two tax credits support the development of wind and solar. There are currently no federal incentives for the development of energy storage, and the unique nature of offshore wind has historically made it difficult for developers to leverage existing credits.

Land-based and offshore wind projects can claim the Section 45 Production Tax Credit (PTC), and the Investment Tax Credit (ITC) in lieu of the PTC, which will expire at the end of 2021. IRS guidance allows four calendar years from date of qualification to commissioning, although projects that commenced construction in 2016 or 2017 have a five-year window.

The Section 48 ITC is available to utility-scale solar projects and is currently set at 26% of eligible project costs. Solar projects that start construction after December 31, 2023 have access to a permanent 10% ITC.

Energy storage and transmission are not eligible for these credits. Tax policies incentivizing their development do not currently exist, despite the widespread benefits both technologies offer consumers and the power system. As a nascent technology, offshore wind is eligible for a 30% investment tax credit for projects that start construction by December 31, 2025 and the IRS recently issued a ruling providing a 10-year safe harbor period for offshore wind projects to receive the ITC. Offshore wind requires a longer-term tax incentive to scale up and encourage additional cost reductions to bring it to grid parity.

The multitude of energy-related incentives has made the energy tax landscape unnecessarily complex. Different energy technologies receive varying levels of support across divergent time periods without a unifying public policy rationale. Actually using the tax credits (monetization) can be difficult for many renewable energy developers, introducing inefficiencies and exposing the industry to economic risks in the financial sector.

Generally, the PTC and ITC require co-investment from large financial entities to ensure all the credits can be used. This creates inefficiencies in terms of higher transactional and capital costs. It also exposes these industries to tax equity supply risks in case of falling revenue (and hence less tax capacity) at these financial institutions.

Clean energy incentives are an investment in our economy, environment, and future.

300,000

Clean energy provides jobs for more than 300,000 Americans.

70-90%

Costs associated with wind and solar have declined by 70% and 90%, respectively, since 2009. These technologies are now the lowest-cost form of new power generation in most parts of the country.

11%

In 2020, wind and solar power delivered 11% of the country’s electricity, up from negligible amounts prior to the establishment of the tax credits.
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