Congress has some unfinished business on alternative energy policy, which may provide unusual legislative opportunities in an election year. While tax credits for wind and solar power received long-term extensions in the year-end omnibus legislation enacted at the end of 2015, other types of alternative energy were left out — reports have suggested unintentionally — spurring some in Congress to seek a remedy in 2016. Additionally, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (IRS) initiated a rulemaking process to further define and clarify the types of property qualifying for the investment tax credit (ITC) under section 48 of the Tax Code. These developments, along with ongoing congressional interest in comprehensive energy policy legislation, could make 2016 a pivotal year for stakeholders in the alternative energy industry.
In a Notice of Proposed Rulemaking issued on November 19, 2015, the Federal Energy Regulatory Commission (the “Commission”) proposed to eliminate the exemption currently available to wind generators from the requirement to provide reactive power. The proposed rule would require that all newly interconnecting synchronous and non-synchronous generators, including wind generators, provide reactive power pursuant to the terms of their interconnection agreements. Additionally, any existing wind generators will be required to provide reactive power if they propose facility upgrades requiring a new interconnection request. Comments on the NOPR are due by the end of January 2016.
Last week the Fifth Circuit issued a ruling that reduces uncertainty regarding criminal liability for taking migratory birds. In particular, the ruling alleviates potential liability for facilities where interactions with migratory birds are effectively unavoidable—such as wind production facilities, power transmission lines, and other energy production or manufacturing facilities. These types of facilities face a fundamental tension under the Migratory Bird Treaty Act (“MBTA”): on the one hand, the MBTA imposes strict criminal liability for the take of migratory birds; and on the other hand, there is no permit available to authorize the unintentional take of migratory birds. The Fifth Circuit’s ruling joins other circuits around the country in holding that the MBTA applies only to the intentional take of migratory birds; however, the court’s ruling widens the split between circuits that differ in how MBTA liability applies.
On August 11, 2015, the United States District Court for the Northern District of California struck down a U.S. Fish and Wildlife Service (the “Service”) regulation that increased the maximum duration of programmatic permits for the incidental “take” of bald and golden eagles from five to thirty years (“the 30-Year Rule”)1. The decision sets aside the 30-Year Rule and leaves its fate in the hands of the Service, with potentially negative consequences for those entities that interact with avian resources. Without the 30-Year Rule, entities like wind farms—where avian interaction is effectively unavoidable—face serious questions related to securing permit coverage for their operations and prosecution for incidental take of eagles.
Moreover, until the 30-Year Rule is either reshaped through the administrative process or challenged on appeal, the previous rule—with its five year permit term and need for reapplication/NEPA review every five years—remains in place. Reapplication will trigger administrative burdens for both the permittee and the Service, with respect to both meeting the requirements of NEPA and the potential for appeals.
New York – A cross-border team of lawyers from global law firm K&L Gates LLP has advised Québec-based Boralex Inc. (TSX: BLX) on its acquisition of French wind farm owner and operator Enel Green Power France SAS for a total net consideration of approximately €280 million in cash. The transaction makes Boralex the largest independent wind power producer in France, and the third largest onshore wind player, behind only the two incumbent French utilities.
The K&L Gates team advising Boralex on the acquisition and on the related approximately €175 million project financing was led by New York corporate partners Sandy Feldman and Holly Hatfield. Other members of the team include New York tax partner Adam Tejeda and corporate associate Justin Purtle; Paris corporate partners Olivia Lê Horovitz and Caroline Ledoux, tax partner Bertrand Dussert, real estate counsel Joanna Klat, corporate associates François Lan, Nawal Sabsibo, and Alexandre Brossier, and labor and employment associate Julie Bouchard; and Frankfurt finance partners Matthias Grund and Bastian Bongertz and finance associate Dominik Pauly.
K&L Gates regularly represents Boralex in both the U.S. and Europe, including in previous transactions in France such as the 2012 acquisitions of French wind company interests from both U.S.-based AES Corporation and French company InnoVent SAS.
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On January 13, 2015,, the Internal Revenue Service (IRS) released Notice 2015-4, which provides new guidance on the small wind energy project credit under Section 48 of the Internal Revenue Code (IRC). In particular, the guidance provides that small wind energy projects must meet certain performance and quality standards to qualify for the credit. The official notice is scheduled to be published on January 26 in Internal Revenue Bulletin 2015-4.
Notice 2015-4 provides that Section 48-eligible property must use a wind turbine that has a nameplate capacity of not more than 100 kW and meets the performance and quality standards as set forth in either:
(1) American Wind Energy Association (AWEA) Small Wind Turbine Performance and Safety Standard 9.1-2009; or
(2) International Electrotechnical Commission (IEC) 61400-1, 61400-12, and 61400-11.
Small wind turbines must meet the AWEA or IEC standards that are in effect at the time of acquisition of the turbine.
The manufacturer of the turbine may provide a taxpayer with a certification that the manufacturer’s turbine meets one of the standards listed above, and taxpayers may rely on such certifications when claiming the credit under Section 48. However, manufacturers should be aware that issuing erroneous certifications or failing to satisfy certain documentation requirements could trigger penalties under IRC Section 7206 (fraud and making false statements) or IRC Section 6701 (aiding and abetting an understatement of tax liability).
Notice 2015-4 is effective for small wind energy property acquired or placed in service after January 26, 2015.
Congress is poised to enact a one-year retroactive tax extenders package that would renew a variety of tax incentives—including the production tax credit (PTC) for wind—through the end of 2014. On Wednesday, December 3, the House passed the Tax Increase Prevention Act of 2014 (H.R. 5771) by a vote of 378-46, sending the bill to the Senate for its consideration before the end of the Lame Duck session. Read More
On Thursday, September 18, Rep. Earl Blumenauer (D-OR) led a group of 18 House Democrats in introducing the Bridge to a Clean Energy Future Act of 2014 (H.R. 5559). The bill would extend several energy tax incentives—many of which Congress allowed to expire at the end of 2013—through the end of 2015. The bill would also extend the production tax credit (PTC), as well as the election to receive an investment tax credit (ITC) in lieu of the PTC, for facilities producing energy from renewable resources through the end of 2016. Read More
The US Department of Energy (DOE) recently released its 2013 Wind Technologies Market Report summarizing the accomplishments of the U.S. wind energy industry. The full report can be found here. Compared to the record-setting 13 GW of new operating wind projects in 2012, 2013 was clearly an off-year, with only a little over 1 GW of new wind energy capacity added. One of the major reasons for this dramatic fall-off was the expiration of the federal income tax production tax credit (PTC) at the end of 2012, which created a land rush of projects being placed in service at end of year 2012, depleting the project pipeline for 2013. The revival of the PTC in 2013 was too late to stimulate significant project completion in 2013. The good news is that because projects that commenced construction by the end of 2013 will qualify for the PTC, a flood of wind projects will be placed in service in 2014 and 2015. The boom and bust cycle of PTC driven wind project development continues.
On August 8, 2014, the IRS issued Notice 2014-46, which provides guidance on several issues relating to the implementation of recent changes to the renewable electricity production tax credit (PTC) under Section 45 of the Tax Code and the energy investment tax credit (ITC) in lieu of the PTC under Section 48. In particular, the Notice addresses the manner in which taxpayers can satisfy the “physical work” test and the effect of various types of transfers of ownership after the construction of a facility has begun. In addition, the Notice modifies the 5% safe harbor test included in previous notices. In light of the issuance of the Notice, the IRS says it will not issue private letter rulings on the topics addressed in the Notice.