Earlier this week, on 11-19-20, a bipartisan bill was introduced in the House of Representatives which would make the renewable energy investment tax credit (ITC) temporarily refundable for projects that break ground by the end of 2021 and would extend the ITC phasedown by one year.
Titled “The Solar Jobs Preservation Act of 2020“, the bill is intended to offset the effects of the COVID-19 pandemic on solar development.
Under the proposed legislation, the ITC would be reduced to 10% by Jan. 1, 2025, a year later than under current law.
We will continue to track this bill and see how the Senate reacts to it, but given the bi-partisan support we would expect to see a positive reaction, that said, who knows given this year.
Duane Morris has an active team of lawyers who engage in the renewables and investment tax credit space. If you have any questions or thoughts, please contact Brad A. Molotsky, Sheila Slocum Hollis, Patrick Morand, Brad Thompson or any of the Duane Morris lawyers you regularly engage with.
Be well and stay safe.
Virginia enacts Clean Economy Act – Renewable Energy Standards and Carbon Free Future Achievable
On August 17, 2020, Governor Ralph Northam signed the Virginia Clean Economy Act (the “VCE Act”), which establishes mandatory energy efficiency standards and provides a pathway for new investments in solar, onshore wind, offshore wind, and energy storage.
Additional legislation advances the shared solar and energy storage program and transforms Virginia’s rooftop solar market.
“We are at a pivotal moment to secure an affordable, clean energy future in Virginia,” said Governor Northam. “Together, these pieces of legislation put the Commonwealth in position to meet the urgency of the climate crisis, and lead the transition to renewable energy in a way that captures the economic, environmental, and health benefits for all Virginians.”
The VCE Act establishes a mandatory renewable portfolio standard (“RPS”) to attempt to achieve a 30% renewable energy composition by 2030, a mandatory energy efficiency standard, and the path to a carbon-free electric grid by 2045.
The VCE Act also declares that 16,100 megawatts of solar and onshore wind, 5,200 megawatts of offshore wind, and 2,700 megawatts of energy storage are in the public interest.
The Governor also signed additional legislation that:
- directs the State Corporation Commission to determine when electric utilities should retire coal-fired or natural gas-fired electric generation facilities and how utility customers should pay for this transition;
- supports new investments in solar energy, including the Solar Freedom bill, which will help grow the rooftop solar market in Virginia;
- establishes a shared solar program which will allow communities to receive credit for the solar energy they generate through a subscriber system. With a minimum requirement of 30% low-income customers, this program is intended to enable Virginians to participate in the benefits of generating solar energy on their homes; and
- will build an energy storage market in Virginia
Duane Morris has an industry facing Energy Practice Group to help individuals and organizations plan, respond to, and address the ever changing landscape of renewables, fossil fuels, pipelines, power plants, and the transmission and generation of energy. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.
If you have any questions about this post, please contact Brad A. Molotsky, Patrick Morand, Sheila Hollis, Brad Thompson or the attorney in the firm with whom you are regularly in contact.
Be well and stay safe!
Leveraging Renewables in Opportunity Zones – Powerful Indeed!
Back on October 19, 2018, the U.S. Treasury Department issued proposed regulations for the federal Opportunity Zone tax incentive program created under the 2017 Tax Cuts and Job Act.
These regulations were highly anticipated by the real estate development and fund creation communities, which have been eagerly awaiting clarity from Treasury since the creation of the Opportunity Zone program earlier this year. We are in the same position now as we await additional guidance from Treasury that is expected in the next two weeks.
The program could become the most impactful federal incentive for equity capital investment in low-income and distressed communities ever. It offers significant capital gains tax benefits for taxpayers who invest in projects and businesses in low-income areas, allowing investors to delay, reduce and potentially eliminate capital gains taxes on appreciated assets or business located in and on Qualified Opportunity Zone investments.
Qualified Opportunity Zones are census tracts located in all 50 states in a low-income community. A detailed interactive map by state identifying the applicable opportunity zones is available, https://eig.org/opportunityzones.
As Forbes magazine indicated, there is likely $6 trillion of capital gains in the U.S. that represent potential available investment capital that could use this program to drive investment into applicable Qualified Opportunity Zone businesses or real estate.
The program is not limited to any specific product type nor does it mandate any job creation requirements as part of the investment in a Qualified Opportunity Zone. Thus, the program is applicable to any type of investor with capital gains from the sale of personal property or real property and to developers/owners of all property types including multi-family rental, retail, hotels, industrial, commercial, office, industries, self-storage, assisted-living, affordable housing, etc.
General Overview:
Under the Opportunity Zone program, individuals and other entities can delay paying federal income tax on capital gains until as late as December 31, 2026 – provided those gains are invested in Qualified Opportunity Funds investing 90 percent of their assets in businesses or tangible property located in a Qualified Opportunity Zone. In addition, the gains on investments in Qualified Opportunity Funds can be federal income tax-free if the investment is held for at least 10 years. These tax benefits could reduce the cost of capital for these projects, making them more viable, especially when paired with other development incentives like the New Markets Tax Credit or Low-Income Housing Tax Credit.
Specifically, appreciation on investments within Qualified Opportunity Funds that are held for at least 10 years are excluded from gross income. Thus, the longer one has an investment within a Qualified Opportunity Fund within an Opportunity Zone, the more one can reduce its capital gain – either by 10 percent or 15 percent, and if one stays in the zone for 10 years or more and the property or qualified business appreciated in value, the appreciation is not subject to capital gains tax at the federal level. The regulations as proposed give the investor/owner until December 31, 2047 to sell the business or property in order to take advantage of the no capital gains to be paid on the sale of appreciated assets rules.
Additionally, owners of low tax basis properties can sell their properties and defer the capital gains to the extent the gains are invested in a Qualified Opportunity Zone, which will likely attract investor capital that is looking to defer capital gains, thereby making the Qualified Opportunity Zones potentially more valuable than non-Qualified Opportunity Zone properties.
In addition, an Opportunity Fund may combine the tax incentives available in Opportunity Zones with other incentives, including those for renewable energy projects.
Renewable energy projects typically are “project financed,” meaning that the project sponsor invests equity and raises debt on a nonrecourse basis where the debt is serviced from the cash flow generated by the renewable energy project. Federal tax incentives such as the investment tax credit (for solar), the production tax credit (for wind), and accelerated depreciation are available to renewable energy projects; however, the project sponsor may need to partner with a tax equity investor in order to take advantage of these incentives because the project company often is a newly created entity with no tax liability of its own. States may also offer tax and other incentives for investing in renewable energy projects, with the most significant being renewable energy certificate (“REC”) programs.
One REC represents one megawatt-hour of electricity generated by a renewable energy resource. In states that have a renewable portfolio standard (“RPS”), electric utilities are required to supply a certain percentage of electricity from renewable energy resources to their customers. If an electric utility is unable to meet its RPS requirement, it may offset the shortfall by purchasing RECs (or, for solar, SRECs) from a secondary market. Even if a renewable energy project is not located in a state with an RPS, it may be able to sell its RECs into a regional market. Thus, renewable energy projects can offer investors significant federal and state incentives.
Thus, having a development project with potentially lower cost equity due to OZ investors receiving the above stated OZ benefits and when combined with the powerful SREC benefits, accelerated depreciation and lower costs of utilities represented by being able to generate your own electricity, all aggregate to present not only an attractive OZ investment opportunity but one that combines incentives for powerful usage and consumption savings which will be reflected in the overall return for the project and which should inure to the benefit of the owner or their occupants.
A powerful gift that keeps on giving in power consumption savings and cost savings and potential upside on sale after ten years. Let the sun shine!
By Brad A. Molotsky and Patrick L. Morand