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January 6, 2021

Consolidated Appropriations Act, 2021, extends certain energy credits

The Consolidated Appropriations Act, 2021 (Act), signed by the President on December 27, 2020, extends several energy credits, including those for renewable energy sources such as wind, solar and offshore wind facilities.

This Tax Alert addresses the following energy credits extended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Relief Act), which was enacted as part of the Act:

  • Section 121 — IRC Section 45Q carbon oxide sequestration credit
  • Section 131 — IRC Section 45 renewable electricity credit
  • Section 132 — IRC Section 48 energy credit
  • Section 148 — IRC Section 25D residential energy-efficient property credit
  • Section 204 — energy credits for offshore wind facilities

IRC Section 45Q carbon oxide sequestration credit extended

Under the Disaster Relief Act, IRC Section 45Q credits can be claimed for any industrial or direct air-capture facility for which construction begins by December 31, 2025, and that captures certain amounts of qualified carbon oxide, depending on its size. The provision had previously required construction to begin by December 31, 2023.

For additional guidance, see Notice 2020-12, released in February 2020, which addresses how to determine when construction has begun on a qualified facility or on carbon capture equipment that may be eligible for the IRC Section 45Q credit. In Revenue Procedure 2020-12, released simultaneously, the IRS established a safe harbor under which partnerships will be treated as properly allocating the IRC Section 45Q credit (see Tax Alert 2020-0432).

IRC Section 45 and 48 renewable energy credits extended

The IRC Section 45 production tax credit (PTC) allows taxpayers to claim a credit for certain renewable electricity produced at a qualified facility. The IRC Section 48 investment tax credit (ITC) allows taxpayers to claim a credit based on certain energy property placed in service during the tax year. Both the PTC and the ITC are being phased down under current law. The amount of tax credit available under both sections depends on the year in which a project begins construction.

For PTCs claimed under IRC Section 45, the Disaster Relief Act extended the beginning-of-construction deadline by one year to December 31, 2021, for wind facilities, closed-loop biomass facilities, open-loop biomass facilities, geothermal facilities, landfill gas facilities, trash facilities, qualified hydropower facilities, and marine and hydrokinetic renewable energy facilities. For eligible facilities that begin construction during 2021, the credit continues to be reduced by 40% (the same reduction amount as facilities that began construction in 2020).

For ITCs claimed under IRC Section 48 for qualified solar energy property, fiber-optic solar equipment, fuel cell property and small-wind-energy property, the Disaster Relief Act extended the beginning-of-construction deadline by two years to December 31, 2023. Eligible projects that begin construction during 2022 will qualify for the current 26% rate, while projects starting in 2023 are eligible for a 22% credit. Any projects that are not placed in service by the end of 2025 are reduced to a 10% or zero ITC. The provision extends the 10% ITC for certain other technology (including combined heat and power property) for which construction begins by the end of 2023.

IRC Section 48(a)(5) energy credits for offshore wind facilities

The Disaster Relief Act extended the beginning-of-construction deadline for offshore wind facilities by four years to December 31, 2025. Projects that begin construction after 2016 (and before 2026) will be eligible for the full 30% ITC (the phaseout of credit for wind facilities under IRC Section 48(a)(5)(E) will not apply). Offshore wind projects will be limited to the ITC for projects that begin construction after 2021; projects that begin construction before 2022, however, may still be eligible for the PTC, subject to the phase-out schedule applicable to onshore wind projects.

IRC Section 25D residential energy-efficient property credit

The Disaster Relief Act extended the credit under IRC Section 25D for residential energy-efficient property by two years to apply to property placed into service by December 31, 2023. In addition, the Disaster Relief Act added "qualified biomass fuel property expenditures" to the types of property eligible for the credit.

Notice 2021-5

Apart from the Act, the IRS released Notice 2021-5, which extends the so-called continuity safe harbor for developing energy projects offshore or on federal land for up to 10 years in accordance with the changes to IRC Sections 45(d) and 48. See Tax Alert 2021-0029.


The renewable energy-related provisions in the Consolidated Appropriations Act of 2021 should be generally well received by the industry and fuel the continued investment of capital across the renewable spectrum. Wind projects that deployed capital in 2020 to meet the start-of-construction requirements for a 60% PTC will effectively miss out on one year of the continuity safe harbor compared to projects starting in 2021, which will receive the same 60% PTC. Offshore wind projects arguably gained the most in the Act. The specific extension allowing construction to begin up through 2025, combined with Notice 2021-5's provisions extending the continuity safe harbor to 10 years, reflect the unique and substantially longer development cycle of offshore wind.

Some industry participants will be disappointed that the Act did not include an ITC for stand-alone storage or a refund of the PTC/ITC.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services
   • Michael Bernier (
   • Dorian Hunt (
Americas Power & Utilities Tax Group
   • Brian Murphy (
   • Ginny Norton (