IRS Clarifies PTC Ruling for Geothermal (Greentech Media)
A newly issued definition from the IRS has removed the last element of uncertainty attached to the extension of the Production Tax Credit (PTC). The PTC is crucial to the wind and geothermal industries.
The IRS definition of "under construction" was necessary because an extension of the credit passed on January 1, 2013 replaced language in the previous tax credit provision that required projects to be in production by the deadline to earn the credit. The new language allows the tax credit to apply to projects that are under construction by its expiration.
According to IRS Notice 2013-29, released on April 15, wind, geothermal, biomass, landfill gas, incremental hydroelectric and ocean energy projects that meet one of two under-construction standards by December 31 of this year will qualify to either get: 1) a tax credit of $0.023 for every kilowatt-hour produced for the first ten years of the project’s life, or 2) an investment tax credit equal to 30 percent of the project’s cost when construction is completed.
To meet the "under construction" qualification, developers must either: 1) show “physical work of a significant nature” has begun on their project, either a) at the site, or b) in a factory to which the developer has given a binding order for specially designed equipment, or 2) show that at least 5 percent of the total project cost has been incurred.
There is no completion deadline for projects that meet the "under construction" standards by December 31.
Geothermal developers had wanted a special ruling allowing their spending and/or efforts at permitting, interconnection contracts, and financing and off-take contracts to apply. Such a provision was not included.
The PTC was already in place for geothermal developers until the end of 2013. They now have until December 31 to get past the costly and time-consuming exploration and pre-development required for a project and to meet the physical work or 5 percent tests.
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