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IRS sets wind tax credit regulations for 2013 projects

The Internal Revenue Service completed rules today that define how wind-farm developers can qualify for tax breaks.

Under a law signed by President Barack Obama in January, wind projects must begin construction by Dec. 31 to qualify for the production tax credit. That’s looser than the standard from previous years, which required energy production to qualify.

The ruling sets the stage for a rebound in wind energy in the second half of this year as developers rush to meet the new requirements, said Amy Grace, an industry analyst at Bloomberg New Energy Finance in New York. Projects that began construction by the end of this year may support demand for as long as two years, she said.

“It will absolutely help more large projects qualify,” Grace said in an interview.

The rules released today define the beginning of construction as “starting physical work of a significant nature,” including road construction, pouring of concrete or off-site assembly of turbines. Developers also can qualify if they incur 5 percent of the total cost of the project and make continuous progress toward completion, according to the IRS.

Preliminary development activities such as getting permits, conducting environmental studies or securing financing don’t count toward the IRS definition that construction has begun.
Tax Credit

“I think they’ve found the right combination that gives developers an appropriate amount of flexibility for a broad range of project and construction scenarios,” said Jacob Susman, founder and chief executive officer of OwnEnergy Inc., a Brooklyn-based builder of wind farms. The ruling also protects taxpayers “by ensuring that real projects that have legitimately begun construction will qualify.”

Developers that complete wind farms under the new IRS guidelines will be eligible to collect a tax credit worth 2.3 cents per kilowatt-hour for the energy produced over a decade.

That could help manufacturers including General Electric Co., Vestas Wind Systems A/S (VWS) and Broadwind Energy Inc. (BWEN) that have been hurt by a drop in U.S. demand this year.

Wind turbine installations will probably drop to 2,800 megawatts from a record 13,000 megawatts installed before the tax credit expired last year, according to New Energy Finance.