Tax legislation enacted at the end of 2019 included the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Act), which extended the tax credit for wind turbines for another year. Consequently, a federal tax credit is now available for projects for which construction begins in calendar year 2020.

The production tax credit (PTC) gives a 2.3¢ per kilowatt-hour tax credit for the first 10 years of electricity generation for wind. The PTC was supposed to be completely phased out by the end of 2019. The Act extended the PTC as follows:

1. Changes definition of qualified facilities in IRC Section 45(d)(1) to include facilities for which construction begins before January 1, 2021 (was previously January 1, 2020)
2. Introduces a new phase-out schedule so projects for which construction begins in 2020 can now benefit from a 60% PTC (a 40% PTC applies to projects for which construction began in 2019)

Implications

Companies that acquired safe harbor turbines or equipment in 2019 with the 40% tax credit are now at a loss from a few perspectives: (1) the credit percentage is lower; (2) they have lost the time value of money; (3) they may miss out on technology advancements; and (4) their projects have to be done by the end of 2023 instead of 2024.

There might be a question of whether companies want to adjust their "begun construction" strategies so that projects no longer start in 2019 and start in 2020 instead. Companies need to be careful, however, as the "begun construction" date is a matter of fact and not choice. An issue with delaying the start of construction may be that companies have already invested in 2019 equipment, which has diminished the resale value.

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