ITC Extension: Big News for Renewables

by Tom Williard, Principal - Sage Renewables | Updated 12/19/2015

Federal Tax Credits Extended for Solar and Wind

President Obama has signed into law the 2016 omnibus spending bill, known as the “‘Consolidated Appropriations Act, 2016”. In this bill, the federal government extends the Investment Tax Credit (ITC) for solar energy projects and the Production Tax Credit (PTC) for wind projects. This is a very big boost for the renewables industry in the U.S. As a result, solar PV companies have seen their stock prices jump as much as 50% over the past three days.

The ITC Extension

The ITC was previously scheduled to step down from 30% to 10% of installed project costs for solar energy projects operational by January 1, 2017. The new law extends the ITC in a number of ways:

To qualify for a particular ITC, projects need to begin construction by the specified deadline. This is essentially a soft deadline, as project implementation can occur after the deadline. Equipment must be placed in service by January 1, 2024 to qualify for greater than 10% ITC. The definition of “begin construction” is determined by the IRS and expected to be the same definition used for the 1603 Cash Grant program.
The 30% ITC deadline for solar energy projects was extended from January 1, 2017 to January 1, 2020.
The ITC steps down to 26% from January 1, 2020 to January 1, 2021.
The ITC steps down to 22% from January 1, 2021 to January 1, 2022.
The ITC steps down to 10% on January 1, 2022.

Here is a graph comparing the new and old ITC schedules:

Impact on California’s PUC NEM 2.0 Proceeding?

While the extension of the ITC and PTC are undeniably good news for the renewable energy industry, this action will put some pressure on the California Public Utility Commission’s (CPUC) Proposed Decision (PD) announced this week concerning NEM 2.0. CPUC staff have stated that the ITC does not impact the NEM 2.0 proceeding, but utility companies in California will undoubtedly use the ITC extension to argue for changes to the PD. At this time, Sage does not anticipate significant changes to the PD before the January 14, 2016 CPUC Commissioner’s meeting where a final decision is expected on NEM 2.0.

The PTC Extension

The PTC had expired for projects not yet in construction by January 1, 2015. The new law extends the ITC in a number of ways:

The 1.5 cent per kWh PTC is extended for projects in construction before January 1, 2020.
The PTC is reduced by 20% from January 1, 2017 to January 1, 2018. This equals $0.012/kWh assuming no other phaseout conditions are met.
The PTC is reduced by 40% from January 1, 2018 to January 1, 2019. This equals $0.009/kWh assuming no other phaseout conditions are met.
The PTC is reduced by 60% from January 1, 2019 to January 1, 2020. This equals $0.006/kWh assuming no other phaseout conditions are met.

Here is a graph showing the PTC extension schedule, assuming no other phaseout conditions are met: