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.
On August 8, 2014, the IRS released Notice 2014-46. The Notice provides guidance with respect to a number of issues. Specifically, the Notice (i) clarifies how to satisfy the “physical work” test under the begin construction requirement, (ii) clarifies the effect of various types of transfers of interests in a facility after construction has begun and (iii) modifies the application of the 5 percent safe harbor as it applies to a single project comprised of a number of facilities. The Notice can be found here. We will post a discussion of the Notice later this week.
If there wasn’t enough uncertainty about the process and standards for obtaining a programmatic eagle take permit, the U.S. Fish and Wildlife Service just made it more difficult. Since 2009, energy developers and operators – from oil & gas to wind & solar – have been able to apply for a permit for the incidental take of eagles. That permit program, which has evolved over the past several years through regulatory revisions and agency guidance, may be poised to change in dramatic fashion.
On June 19, 2014, the American Bird Conservancy and other individual plaintiffs (the “ABC Plaintiffs”) filed a lawsuit against the U.S. Fish and Wildlife Service (“USFWS”). The ABC Plaintiffs are challenging the USFWS’ revision to its eagle take rule. Specifically, the ABC Plaintiffs are challenging the agency’s determination to extend the maximum term for an incidental eagle take permit (“ETP”) to 30 years on two ground: first, USFWS revised the eagle take rule without analyzing environmental impacts under the National Environmental Policy Act (“NEPA”); and second, the rule violates the Bald and Golden Eagle Protection Act (“BGEPA”) by subverting basic eagle protections and safeguards without adequate explanation. Read More
The Treasury Department and the Internal Revenue Service (IRS) are considering whether to release a third round of guidance on the production tax credit (PTC) for renewable electricity under Section 45 of the Tax Code and the investment tax credit (ITC) in lieu of the PTC under Section 48. The intent of the guidance would be to further clarify the changes in the PTC/ITC enacted as part of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. No. 112-240). Read More
A team of K&L Gates attorneys will attend the AWEA WINDPOWER 2014 conference and exhibition in Las Vegas from May 5 to 8. This premier industry event brings together a diverse group of professionals with interest in wind power – project developers, suppliers, technicians, power purchasers, service providers, and others – to discuss trends, to hear from innovators and specialists, and to network and collaborate with colleagues. Our attorneys look forward to contributing to the conversation at the K&L Gates exhibit booth (no. 2977). Please be sure to stop by and say hello.
Additionally, K&L Gates attorneys Sam Hines and Lindsey Greer will present on the importance of worker status in the offshore wind environment during the poster presentations on Wednesday, May 6 from 4:30pm to 6:00pm in Bayside Hall D. Please join Sam and Lindsey to discuss the various legal statuses offshore workers hold under U.S. maritime law and the potential liabilities offshore employers can face in the event of a worker injury.
We look forward to seeing you at AWEA.
To learn more about the K&L Gates attorneys attending the event, please click on the names listed below:
On May 15, 2014, K&L Gates will host its annual event on investment in renewable energy in its Frankfurt office. The event is co-sponsored by Grontmij and Alexa Capital.
The program will address recent developments that shape the environment of investment in renewable energy, focusing on investment in the UK while also covering German and European trends.
As in previous years, the program will combine legal and commercial perspectives, and presents speakers with professional backgrounds in project development, M&A, finance and law, all widely experienced in the renewable energy sector.
This year, program and speakers include:
- The Development of the Yield Co: implications for investing in renewables and energy
Gerard Reid, Partner, Alexa Capital
- UK Energy Market Reform: what it means for investors
Anthony Fine, Partner, K&L Gates, London
Paul Tetlow, Partner, K&L Gates, London
- UK Power Grids: opportunities and solutions for renewable energy industry
Vijay Shinde, Head of UK Grid Services, Grontmij, Newcastle
- Power Purchase Agreements (PPAs): the growing need and what it means for renewable investors
Dr. Felix Grolman, CEO, Grundgrün Energie GmbH
- The Future of Offshore Wind
Ian Nolan, Chief Investment Officer, Green Investment Bank
- Yield Cos: strategies to lower the cost of capital
Mark Henderson, Partner, Greencoat Capital
Nick Boyle, CEO, Lightsource
- Development Companies: entering and operating in the UK
Thomas Kercher, CEO, PFALZSOLAR GmbH
Oliver Christof & Constantin Windisch-Graetz, Christof AG
- Renewable Energy 2.0: what it means for all of us
Anthony Fine, K&L Gates (Chair)
Vijay Shinde, Grontmij
Gerard Reid, Alexa Capital
Felix Groelman, Grundgrün Energie GmbH
Mark Henderson, Greencoat Capital
Nick Boyle, Lightsource
For more information: click here.
For registration: click here.
In March 2014, the German government presented the details of its plans for changes in the country’s renewable energy support scheme. The planned legislation (the “Draft”), which passed the cabinet on 8 April 2014, seeks to curb the increase of energy costs and to promote a stronger market integration of renewable energy production.
Under the Renewable Energies Act (“EEG”), renewable energy producers are entitled to fixed feed-in tariffs and to priority feed-in into the grids. The spread between the market price and the feed-in tariff is levied to electricity consumers by a renewable energy surcharge (“EEG Surcharge”) whereby energy-intensive industries benefit from a reduction.
Under the EEG support scheme, renewable energy sources have experienced a boom in Germany, now serving as a source for about 25 % of the country’s electricity consumption – four times as much as a decade ago. In turn, the system has increasingly been put under political pressure as energy costs (especially for households) continue to increase. In addition, the support scheme is held to produce a paradox effect: whereas consumer prices increase due to the EEG Surcharge that levies the feed-in tariffs, wholesale electricity prices plunge because the rapidly growing renewables are flooding the market. The effect of this price development is tangible: Germany’s second largest utility, RWE AG from Essen, whose core business is electricity delivery, has announced a net loss for the year 2013 of 2.8 billion Euros. It was RWE’s first loss-making year since the end of the Second World War. Read More
The Senate Finance Committee approved its long-awaited tax extenders package on April 3, 2014. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, which the Committee approved by voice vote, would extend dozens of temporary tax incentives that expired at the end of last year or are set to expire at the end of this year. Moreover, the package includes numerous energy tax incentives that lapsed at the end of last year.
The EXPIRE Act would extend the following energy tax provisions:
- * Production tax credit and investment tax credit with respect to facilities producing electricity from certain renewable sources (e.g., wind) (Sections 45 and 48)
- * Deduction for energy efficient commercial building property (Section 179D)
- * Credit for residential energy efficient property (Section 25C)
- Alternative fuel refueling property credit (Section 30C)
- Credit for electric motorcycles and three-wheeled vehicles (Section 30D)
- Second generation biofuel producer credit (Section 40)
- Special depreciation allowance for second generation biofuel plant property (Section 168(l))
- Tax credits for biodiesel and renewable diesel (Section 40A)
- Credit for the production of Indian coal (Section 45(e)(10))
- Credit for energy efficient new homes (Section 45L)
- Alternative fuel and alternative fuel mixture credit (Sections 6426 and 6427(e))
- Credit for new qualified fuel cell motor vehicles (Section 30B) (expires in 2014)
* Provision was not included in Senator Ron Wyden’s (D-OR) “Chairman’s mark” but was added to the package before the Committee’s mark-up.
That said, the EXPIRE Act is, for the most part, a “clean” extenders package, meaning that the proposal mostly changes termination dates and includes few changes to underlying policy. As a result, certain modifications sought by the renewable energy industry were not included. For example, the proposal would not expand Master Limited Partnerships (MLPs) along the lines of Senator Chris Coons’ Master Limited Partnerships Parity Act (S. 795). Additionally, the EXPIRE Act would not impose a “commence construction” requirement (as opposed to a “placed in service” requirement) with respect to solar projects under the investment tax credit under Section 48. Finally, it would not extend the credit for energy efficient appliances under Section 45M.
K&L Gates hosted Chairman Wyden for a breakfast meeting on April 8. Wyden stated that he is working with Senate leadership on a strategy that would bring the EXPIRE Act to the Senate floor. Some staff indicate that floor action could occur as early as the next congressional work period, during the weeks of April 28 or May 5. Meanwhile, the House Ways and Means Committee may also consider energy tax incentives soon as part of its planned series of hearings on tax extenders.
We will provide more updates as this debate unfolds over the coming months.
On March 4, President Obama released his annual budget request to Congress. The President’s Fiscal Year (FY) 2015 request includes many proposals from previous years, but it also includes some new ideas—including on energy taxes. Below is a summary of the Administration’s energy tax proposals.
- Modify and Permanently Extend the Renewable Electricity Production Tax Credit (PTC). As in its budget request last year, the Administration would make the Internal Revenue Code (IRC) Section 45 PTC permanent, refundable, and available to solar facilities. However, there are two significant changes from last year: (1) the Administration would make the credit available for electricity consumed directly by the taxpayer; and (2) solar facilities could choose to use either the PTC or the investment tax credit (ITC) under IRC Section 48 through the end of 2016. After 2016, the proposal would repeal the permanent 10 percent ITC for solar and geothermal property.
- Modify and Permanently Extend the Deduction for Energy-Efficient Commercial Building Property. The Administration would raise the current maximum deduction for energy-efficient commercial building property to $3.00 per square foot, increase the maximum partial deduction for each separate building system to $1.00 per square foot, and provide a new deduction to reward energy savings achieved by retrofits to existing buildings, among other changes.
- Provide a Tax Credit for the Production of Advanced Technology Vehicles. The Administration would replace the existing tax credit for plug-in electric drive motor vehicles with a credit for “advanced technology vehicles” that: (1) operate primarily on an alternative to petroleum fuels; (2) use technology employed by few other vehicles in the U.S.; and (3) exceed the “target” miles per gallon gasoline equivalent (MPGe) by at least 25 percent.
- Provide a Tax Credit for Medium- and Heavy-Duty Alternative Fuel Commercial Vehicles. The Administration would create a new tax credit for alternative fuel vehicles weighing more than 14,000 pounds. The credit would equal $25,000 for vehicles weighing up to 26,000 pounds and $40,000 for vehicles weighing more than 26,000 pounds.
- Extend the Tax Credit for Cellulosic Biofuels. The tax credit for the production of cellulosic biofuels under IRC Section 40 (recently re-titled the “second generation biofuel producer credit”) expired at the end of 2013. The Administration would retroactively extend the credit through 2020 at its current level of $1.01 per gallon.
- Modify and Extend the Tax Credit for the Construction of Energy-Efficient New Homes. The Administration would extend the tax credit for new energy-efficient homes acquired before 2015. For homes acquired between 2015 and 2025, the proposal would provide a $1,000 credit for the construction of a qualified ENERGY STAR certified new home. The Administration would also provide a $4,000 tax credit for construction of DOE Challenge Homes.
- Reduce Excise Taxes on Liquefied Natural Gas (LNG) to Bring Into Parity with Excise Taxes on Diesel. The Administration would lower the 24.3 cents per gallon excise tax on LNG to 14.1 cents per gallon after 2014.
The Administration has also proposed to repeal numerous tax preferences for conventional energy companies. In particular, the President proposed to repeal the following provisions:
- Credit for Enhanced Oil Recovery (“EOR”) Projects
- Credit for Oil and Natural Gas Produced from Marginal Wells
- Expensing of Intangible Drilling Costs
- Deduction for Tertiary Injectants
- Exemption to Passive Loss Limitation for Working Interests in Oil and Gas Properties
- Percentage Depletion for Oil and Natural Gas Wells
- Domestic Manufacturing Deduction for Oil and Natural Gas Production
- Expensing of Exploration and Development Costs
- Percentage Depletion for Hard Mineral Fossil Fuels
- Capital Gains Treatment for Royalties
- Domestic Manufacturing Deduction for the Production of Coal and Other Hard Mineral Fossil Fuels
In addition to repealing these provisions, the Administration would increase the geological and geophysical amortization period for independent oil producers from two years to seven years.
Although it’s unclear whether Congress will enact any of these proposals into law, the Administration’s budget request is significant in that it establishes the President’s position on energy tax issues moving forward. This positioning is especially important as Congress debates tax extenders legislation and energy tax reform. It’s also important when considered in comparison to recent proposals from House Ways and Means Committee Chairman Dave Camp (R-MI), whose tax reform discussion draft would repeal incentives for alternative energy, and former Senate Finance Committee Chairman Max Baucus (D-MT), whose tax reform staff discussion draft would establish a regime of technology-neutral tax incentives to reward reductions in greenhouse gas emissions while eliminating other energy tax provisions.
Stay tuned for more information as this debate unfolds.