IRS Grants Wind and Solar Safe Harbor Provisions

The Internal Revenue Service extended the “safe harbor” provisions under the wind and solar tax credits to account for delays companies faced due to the coronavirus pandemic. Under the safe harbor provisions, developers can qualify for the federal tax incentives if they demonstrate there is continuous construction on their project over a certain period of time.

The IRS adjusted the provisions in two ways to reflect for coronavirus-related delays. First, it allows an extra year for developers to complete construction and bring their projects on-line for projects that began construction in 2016 and 2017. Second, developers can qualify for the incentives if there was a “reasonable expectation at the time they made the payment” that they would receive the ordered services or equipment within three and a half months. The latter adjustment applies for services or equipment paid for between September 16, 2019, and October 15, 2020.

The Treasury Department committed to help the wind and solar industries in a letter to Senator Grassley dated May 7, 2020. The safe harbor provisions were requested in a letter to Treasury Secretary Mnuchin from three senators on May 21, 2020. Wind and solar energy groups lobbied Congress and asked the Treasury Department for help because of supply chain disruptions, travel restrictions, factory shutdowns, and other challenges from the pandemic that delayed projects. For example, Chicago-based Invenergy sent Wisconsin’s Public Service Commission a notice of force majeure, excusing it from its contract deadlines due to unforeseen events, citing potential delays for its Badger Hollow Solar Farm project.

Renewable Energy Companies Did Not Get All They Wanted

Renewable energy companies wanted two changes to the tax credits—an extension of the safe harbor deadlines and a direct pay option. The direct pay option allows developers to claim the tax credits as cash payments, which would help with project financing since tax credits are only valuable if a company has a tax obligation occurring from a profit. The direct pay option, however, requires Congressional action.

The House of Representatives initially considered aid to the wind and solar industries in the negotiations to the CARES Act. But lawmakers were not unified as to which energy industries should get aid and many lawmakers did not want the Green New Deal to be part of the recovery legislation because of priorities needed to be on the health and livelihoods of people struggling from the coronavirus.

China Cuts Prices of Solar Components and Panels

Chinese manufacturers dominate the global solar power supply chain and are faced with struggling demand as the coronavirus has resulted in fewer homeowners investing in solar panels and workers having been kept away from installation sites to control the spread of the virus. Chinese factories comprise at least 73 percent of global capacity producing polysilicon ingots, cutting them into wafers, and forming them into cells to combine into panels. This dominance has come under increasing scrutiny in the wake of the pandemic and the realization that the United States has become reliant upon China for much of our necessities.

As a result of the lost demand, Chinese manufacturers are being forced to slash prices. Costs for components like wafers and cells have dropped by as much as 20 percent and panel prices have dropped 10 percent since the start of the year. Prices may drop further as the outlook for demand remains uncertain and as new manufacturers produce additional supply. One forecast has prices falling another 15 percent to about $0.28 per standard piece. New global solar capacity added this year is projected to drop by 19 percent compared to before the outbreak of the coronavirus.

Conclusion

According to the International Energy Agency, the renewable capacity expected to be added worldwide in 2020 is 167 gigawatts less than the amount added in 2019—a decline of 13 percent and the first decline in growth in 20 years. The decline is a result of delays in construction activity due to supply chain disruption—especially in China, lockdown measures, social-distancing guidelines, and emerging financing challenges. Due to requests made by lawmakers, the Trump administration came to the aid of the U.S. renewable industry by extending the safe harbor provisions under the tax credits for renewables, which is one of two requests made by the renewable industry. The other request for cash payments is one that Congress must address.

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