FY 2016 Omnibus Budget and Federal Highway Bill extend solar & wind tax credits

By, Scott Sklar

SCOTT SKLARScott Sklar is President of The Stella Group, Ltd., a strategic policy and technology firm, an Adjunct Professor at The George Washington University, and chairs the Steering Committee of the Sustainable Energy Coalition. He can be reached at solarsklar@aol.com.

In December 2015, House Republicans unveiled legislation that included multiyear extensions of tax credits for solar, wind, biofuels and electric vehicles, and energy efficiency. This legislation is the most significant action by Congress in the last few years and insures a robust growth rate for the depth and breadth of the renewable energy and energy efficiency industries.

The Omnibus Budget Bill lifted the ban on exports of U.S. crude oil, a symbolic gesture to the Republican Congressional leadership as well to an assortment of Democratic and Republican oil state members of Congress. While I was not bullish on this idea, the fact that we have a global oil glut with prices at rock bottom, will not jettison US oil on the world stage any time soon.

Under the Omnibus Bill, the 30 percent Investment Tax Credit (ITC) for solar will be extended “as is” for another three years, and then ramp down incrementally through 2021, and remain at 10 percent permanently beginning in 2022.

The 2.3-cent Production Tax Credit (PTC) for wind will also be extended through 2016. Projects that begin construction in 2017 will see a 20 percent reduction in the incentive, and then the wind PTC will then drop 20 percent each year through 2020.

The legislation would make the R&D tax credit permanent. Small businesses with less than $50 million in gross receipts can claim the credit against their alternative minimum tax liability. Certain small businesses can claim the credit to offset their payroll tax liability.

Other Extenders in the “Extenders Act” but not in the “Omnibus Bill” which was also passed by Congress: Extension and modification of bonus depreciation.

The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period).

Energy efficiency, renewable fuels and alternative vehicles also did well. Some highlights below are:

Section 181. Extension and modification of credit for nonbusiness (residential) energy property. The provision extends through 2016 the credit for purchases of nonbusiness energy property. The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500.

Sections 184,5,9. Extension of second generation biofuel producer credit. The provision extends through 2016 the credit for cellulosic biofuels producers, and, extension of biodiesel and renewable diesel incentives. The provision extends through 2016 the existing $1.00 per gallon tax credit for biodiesel and biodiesel mixtures, and the small agri-biodiesel producer credit of 10 cents per gallon. The provision also extends through 2016 the $1.00 per gallon production tax credit for diesel fuel created from biomass. Along with Section 189 which extends of special allowance for second generation biofuel plant property. The provision extends through 2016 the 50-percent bonus depreciation for cellulosic biofuel facilities.

Section 190. Extension of energy efficient commercial buildings deduction. The provision extends through 2016 the above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings.

Another legislative win in December, President Obama signed the Highway Authorization Act into law which included a provision for accelerated federal authorization (licensing, permitting, approval, etc.) and environmental review processes for qualifying large infrastructure projects. The project categories include Renewable Energy Production, Pipeline, Water Resource Projects, and Electricity Transmission. Renewable energy and energy storage are increasingly economic and more resilient than traditional energy approaches, especially for infrastructure.

These two mega-bills are more than just a feel good win, but rather a long term bipartisan national policy commitment to clean energy in all its forms. The support was broad along political, geographic, and ideological lines.

The policy gives market and investment stability, not only to the solar and wind sectors, but almost the entire portfolio of renewable energy but does not yet include geothermal, water energy, and biomass fuels and electricity. Additionally, energy efficiency was formally supported in buildings and industry which is essential to meet emissions and provide a higher impact for renewable energy options.

And while market stability is of critical importance to the clean energy industries, this congressional action was even more important in its significance that clean energy has matured to the point that both parties can step up and proclaim it is for the national good and the global good.

The month of December 2015 had high significance for clean energy and the environment our national security.