Clean energy got a boost in the $1.4 trillion 2021 Omnibus Appropriations Bill that Congress passed on December 21. Highlights include an extension of the renewable energy tax credit and the production tax credit. In addition, $35 billion has been committed to energy research and development programs. The president signed the bill into law on December 27.
Renewable Energy Tax Credit Extension
Congress extended the Renewable Energy Tax Credit for solar projects for two-years. The extension allows the current 26% credit to continue for projects that begin construction before the end of 2022, rather than 2020 as they would have under existing law. The RETC will fall to 22% for projects that begin construction by the end of 2023. It falls to 10% after that. The extension effectively supports solar growth through 2025, as developers can utilize “safe-harbor” provisions to fund projects with higher credit rates.
The extensions provide welcome relief for renewable energy industries that have experienced COVID-related disruption in 2020. Supply-chain delays, work stoppages, and capital and customer unsettling impacted the pace of development. In addition to current financial benefits, the extensions also give clean energy industries better posture for further policy support from the incoming Biden administration.
Production Tax Credit Extension
The Bill also provides for a 1-year extension of the Production Tax Credit for wind power projects. The PTC, typically claimed by onshore developers, will remain at 60% for projects that begin construction by the end of 2021. Previously, the PTC would have reduced to 40% for 2021. For offshore wind projects, the Bill allows continuation of the 30% ITC for projects that begin construction through 2025.
Clean Energy RD&D Programs
The energy research, development and demonstration (RD&D) funding in the Bill is reportedly the first major energy legislation passed in a decade.The Bill contains about $35 billion in funding over the next five years across Energy Department programs.
Included among the identified priorities are programs to improve clean energy efficiency and cost-effectiveness, boost manufacturing and recycling, and better integrate renewable power into the transmission and distribution grids. Along with these RD&D funds, the Bill directs the Department of the Interior to set a target of at least 25 gigawatts of solar, wind and geothermal production on public lands by 2025.
Additional funding is being committed to research and commercialization of energy storage technologies, grid modernization, cybersecurity, carbon capture and emissions reduction, and nuclear research and modernization.
The benefits for the clean energy industry in the 2021 budget bill are significant, even if not all of the asked-for provisions were included. “Direct pay,” for example, which would have converted tax credits into direct payments from the federal government, were excluded. Nevertheless, the considerations allowed to clean energy position the industry for continued growth and portend further constructive dialogue with the Biden administration. In addition, we expect clean energy investor and developer confidence to increase with the extensions. For information about available solar tax credit projects, contact Windmill Capital Management,