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.