Alert

The Build Back Better Act (BBBA), which passed the US House of Representatives on November 19, 2021, allocates nearly $900 billion to clean energy investments and tax incentives. Democratic Senator Joe Manchin of West Virginia indicated he wouldn’t vote for BBBA, likely thwarting the bill in its current form.

Given bipartisan support for many clean energy provisions in the BBBA, a scaled-back version containing those provisions is expected to be introduced in early 2022.

Following are some noteworthy provisions of the current bill.

Broadening Incentives for Green Energy Investments

The BBBA proposes to extend and modify existing incentives currently set to phase out or expire, including the Section 45 Production Tax Credit (PTC) and the Section 48 Investment Tax Credit (ITC).

The act would expand the scope of qualified investments, which would include stand-alone energy storage property, qualified biogas property, microgrid controllers, and transmission property. More investors could also benefit from a direct-pay option, which is discussed below.

Production Tax Credit

The PTC is currently expired for projects with construction starting after December 31, 2021, but the BBBA would extend the credit to projects beginning construction prior to January 1, 2027. Solar PTC would be revived and extended through 2026.

The base rate of the PTC would be .5 cents per kWh of electricity produced, with a maximum credit of 2.5 cents per kWh of electricity produced when prevailing wage and apprenticeship requirements are met.

A 10% bonus credit would be available for projects that meet the domestic content requirements or those located in qualifying energy or low-income communities.

Investment Tax Credit

The BBBA proposes to extend the ITC to projects beginning construction prior to January 1, 2027.

The base rate would be 6% with a maximum credit of 30% when prevailing wage and apprenticeship requirements are met.

A 10% bonus credit would also be available for projects meeting domestic content requirements or are in energy or low-income communities.

Under current law, the ITC started phasing out in 2019.

Current Law ITC Phasedown Schedule

• 26% for projects started in 2021 and 2022
• 22% for projects with construction beginning in 2023
• 10%, which is a permanent reduction, for projects beginning construction after 2023

A New Framework

Credit structures for the PTC and ITC are two-tiered under the BBBA. There’s a base rate and a bonus rate that’s five times the base rate for eligible projects.  

Base Rates

• PTC base rate is 0.5 cents per kWh of electricity produced
• ITC base rate is 6% of qualifying property costs

Bonus Rates

Bonus rates would become available at five times the base rate, which is 2.5 cents per kWh for the PTC and 30% of eligible costs for the ITC.

For taxpayers to earn the proposed bonus rates, prevailing wage and apprenticeship requirements to be met include:

• All laborers must be paid prevailing wages—the average wage paid to similarly employed workers in a specific occupation.
• A certain percentage of wages must be paid to qualified apprentices.

Enhanced Incentives

BBBA proposals include enhanced incentives for Section 45 PTC and Section 48 ITC:

• 10% bonus to taxpayers who meet the domestic content requirement and can certify that the domestic manufacturing of property or facilities was produced at least 40% within the United States before January 1, 2025, increasing each year to 55% through 2026. For offshore wind projects, the domestic content requirements are modestly lower.
• 10% additional bonus for property located in an energy community, which refers to coal mines closed after December 31, 1999, or coal-fired power plants retired after December 31, 2009. Energy communities specifically exclude oil and gas communities.
• 10% additional bonus for solar or wind property placed in service in connection with low-income communities (as defined in Section 45D) or on Indian Land.
• 20% additional bonus for solar or wind projects in qualifying low-income residential buildings or low-income economic benefit projects.

Direct-Pay Option

Taxpayers owning clean energy facilities that would otherwise qualify for certain credits like the ITC and PTC could make an irrevocable direct pay election, which would be treated as tax paid in the amount of the credit.

If taxpayer liability doesn’t exceed the amount considered paid, the excess could be refunded. Pass-through entities would be paid directly.

The direct-pay option is subject to the domestic content requirement, meaning that a certain portion of the project must be manufactured in the United States. If direct pay is elected but the domestic content requirement isn’t met, the credit would be subject to a phasedown for projects with construction beginning after 2023.

Other Extensions

The following alternative fuel credits would extend through 2026:

• Biodiesel and biodiesel mixture credits
• Alternative fuel and alternative fuel mixture credit
• Second generation biofuel credit
• Sustainable aviation fuel credit replacing existing credit with refundable blenders tax credit for each gallon of sustainable aviation fuel sold as part of a qualified fuel mixture

These credits would extend through 2031:

• Section 45Q carbon capture credit
• Section 25C residential energy property credit increase to 30%
• Section 25D residential energy-efficient property credit increased to 30% through 2031, phasing down in 2032 and 2033
• Section 30C alternative fuel refueling property

New Credits and Incentives

The BBBA would also provide new credits and incentives for business and nonbusiness-related energy efficiency projects and electric vehicle purchases, including electric bicycles.

New credits and incentives would include:

• Section 48D investment tax credit for certain transmission properties
• Section 45BB clean electricity production tax credit for clean electricity produced at a qualified facility
• Section 48F clean electricity investment tax credit for qualified investment in an electric-generating facility or any energy storage property
• Section 45 clean hydrogen PTC for producing clean hydrogen
• Section 45W zero-emission nuclear power PTC for electricity produced at a nuclear facility
• Section 45CC clean fuel production credit for producing other clean fuels

We’re Here to Help

For more details on how you or your company could be affected by these potential changes, contact your Moss Adams professional. You can also learn more about topics affecting the renewable energy industry.