As the initial relief and excitement over the extension of the wind energy production tax credit (PTC) begin to subside, many developers are seeking clarification on what the changes to the legislation’s language mean for their projects and future development plans.
As most in the industry know by now, projects must begin construction – rather than enter operation – by Jan. 1, 2014, in order to qualify for the PTC. The change in language was welcomed by many developers, which are now afforded more time to complete their projects. However, the new verbiage also introduced a number of questions, such as what it technically means to begin construction.
The American Wind Energy Association (AWEA) is seeking to clear up some of this confusion. Although some of the details are still up in the air, AWEA is currently working with congressional leaders and other stakeholders to quickly attain answers for the industry, the association said at a recent webinar.
Tom Vinson, AWEA’s senior director of regulatory affairs, said the association is pushing for the latest rules to be the same as those established under the Treasury’s Section 1603 cash-grant program, as the industry is already familiar with that guidance. New rules would delay the development process and render the PTC extension less useful, he noted.
“AWEA will pitch that [the new PTC guidance] needs to be timely and based on prior precedence that has proven workable,” Vinson said.
Under the old PTC rules, beginning construction meant starting work “of a significant nature,” which could include steps like building access roads and foundations, but not initial work such as environmental reviews and geophysical studies. Moreover, beginning work on one turbine qualified as construction on the entire project.
However, the previous guidance was less clear about whether construction had to be continuous in order for the project to qualify for the PTC. Now that the PTC deadline has been modified from a placed-in-service date to a start-construction date, this specificity will be of utmost importance, as projects could potentially begin construction and then sit idle, and still qualify for the PTC.
In order to address this concern, the Internal Revenue Service (IRS) and the Treasury Department could add a continuous-construction requirement, which could be bad news for projects being built in cold climates or for those that face seasonal wildlife restrictions.
Alternatively, the agencies might tack on a placed-in-service deadline to the new PTC rules, Vinson said, noting that this could be an interest of the Joint Committee on Taxation, which is working with the IRS and the Treasury on the guidance.
Despite the extended timeline afforded by the new start-construction language, developers should be aware that the same changes were not made to the requirements for bonus depreciation: The fiscal-cliff legislation extended the 50% bonus-depreciation allowance for property (i.e., equipment) placed in service before Jan. 1, 2014.
Vinson said AWEA is working to clarify all of these requirements in order to provide developers with more certainty. Although the Treasury will be involved in the process, the new guidance will have to come primarily from the IRS, which will complete the initial drafting of the rules. According to Vinson, those rules will most likely come in the form of informal guidance, rather than a full-fledged rulemaking.
Whereas the Treasury and the IRS took about five months to provide the previous PTC guidance, Vinson said he expects that this time, the process will take somewhere between two and four months. However, he added that AWEA will continue to push the agencies for a quicker turnaround.
Rob Gramlich, AWEA’s interim CEO, said the association is meeting this week with key congressional leaders and the IRS, and more guidance could be available by the end of the month.
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