Marten Law: Tax Legislation Sets Up Race to "Begin Construction" of Renewables Facilities by Year-End

Marten Law: Tax Legislation Sets Up Race to "Begin Construction" of Renewables Facilities by Year-End

   By Richard Allan, Partner, Marten Law PLLC

As part of the American Taxpayer Relief Act of 2012, Congress extended eligibility for tax credits for renewable energy projects through the end of 2013, provided developers "begin construction" before the end of the year. Because the Act gives developers little direction as to what the phrase "begin construction" means, Richard Allan of Marten Law PLLC considers several possible definitions in this Emerging Issues Analysis.

Excerpt:

When Congress sent the "fiscal cliff bill"-officially known as the American Taxpayer Relief Act of 2012 (ATRA) -to the President for signature in early January, it also provided a lifeline to renewable energy development by extending-in modified form-eligibility for tax credits. Tax credits have allowed the industry to remain competitive with fossil fuels. Eligibility for those credits was set to expire at the end of 2012 for wind projects and at the end of 2013 for other renewable energy sources. As part of the "fiscal cliff" tax deal, however, Congress extended eligibility for tax credits for renewable energy projects through the end of 2013, provided developers "begin construction" before the end of the year. Unfortunately, the Act gives developers little direction as to what the phrase "begin construction" means. That is the subject of this article.

The production tax credit (PTC) was enacted as part of the Energy Policy Act of 1992, and has been extended several times. The PTC is an income tax credit based on production of electricity from certain renewable energy sources. Eligible taxpayers receive a credit at an inflation-adjusted rate per kilowatt-hour of electricity generated from qualified resources and sold to unrelated persons. The credit is available for 10 years, beginning when the facility is placed in service.

For calendar year 2012, the Internal Revenue Service calculated the credit for the sale of electricity produced from wind, closed-loop biomass, geothermal energy, and solar energy at 2.2 cents per kilowatt hour and the credit for the sale of electricity produced from open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facilities, qualified hydropower facilities, marine and hydrokinetic energy facilities at 1.1 cents per kilowatt hour.

Richard H. Allan, a partner at Marten Law PLLC, represents developers in the acquisition, siting, expansion and operation of major projects, with an emphasis on energy facilities, but also including industrial facilities, ski areas, and destination resorts. He also regularly advises clients on the environmental aspects of real estate and business transactions, including: due diligence; negotiation of indemnities, prospective purchaser agreements and insurance coverage; and development of strategies for remediation to facilitate cost-effective and protective site redevelopment.

Richard has represented business owners and developers on the environmental, land use and natural resource issues arising in all phases of project development, including site selection and acquisition, permitting, development and operation. His experience in adversarial proceedings ranges from numerous local land use hearings and appeals, to administrative contested cases before state agencies concerning energy, wetlands, water rights and environmental enforcement, to trial court and appellate proceedings in state and federal courts.

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