ITC Guidance from IRS Clears the Way for Investors

Anyone who works in or follows government knows that the journey from advocacy to policymaking to implementation can be a long and arduous one—and every delay along the way can cost large sums of money and, more importantly, time.

That is why there has been much anticipation among developers of solar, qualified fuel cell, qualified microturbine, combined heat and power, and qualified small wind and geothermal heat pump facilities for guidance from the Internal Revenue Service (IRS) to determine how to meet the “beginning of construction requirement” for the recently extended Investment Tax Credit (ITC).

The ITC is a 30 percent federal tax credit that is critical for residential and commercial and utility investors. Consider the solar energy industry, for example; any business that installs, develops and/or finances a solar energy project can claim the credit, while homeowners who purchase solar systems outright and have them installed on their homes can also apply the credit to their personal income taxes.

It has had a profound effect: Our friends at the Solar Energy Industries Association (SEIA) report that the solar industry has experienced 59 percent compound growth in the solar industry in the decade since the ITC was first enacted. Many of the projects planned in coming years are counting on it being there.

While the budget bill passed in February of this year extended the ITC, Congress left unclear the exact criteria that would be used to qualify. Fortunately, the IRS filled in the blanks on June 22nd.

Notice 2018 59 provides two methods to establish when construction of a solar facility starts to qualify for the 30 percent ITC for solar: (1) starting physical work of a significant nature or (2) meeting the “five percent safe harbor test.” Specific examples are included that make all the parameters clear. The guidance is unambiguous and reinforces the incentives for investors behind clean energy projects.

It’s great to see more responsiveness and clarity from the IRS on this matter. This is critical for the business certainty necessary to acquire investment capital for American clean energy projects.

Most investors considering devoting millions or even billions of dollars to a project want to make sure they aren’t risking their (and their partners’) funds. The key to unlocking the potential of clean energy so far has had more to do with cost effectiveness than anything else. People care about reducing emissions, but the economic and job implications are making the real difference in attitudes and actions toward clean energy development.

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