Fast approaching in 2018, the wind Production Tax Credit (PTC) will step-down once again, reducing the financial incentive provided to new projects to 60% of the full credit previously available in 2015/16.
The good news for commercial, industrial, and institutional (C&I) buyers, however, is that developers prepared for the step-down by commencing construction on projects before the end of 2016. "Safe harbored" assets from those projects still qualify for 100% of the PTC, so long as the projects are completed within four years of their start date.
Now is an opportune time for C&I buyers to pursue offtake of these projects via a power purchase agreement (PPA). By definition, there are a finite number of projects available with the full PTC; once those safe harbored assets are fully utilized, all new projects will be subject to the PTC step-down. It can take anywhere from 9-18 months to complete a PPA and an additional 12-18 months to finish building the project once the PPA is signed. Given this timeline - and that competition for these projects is increasing thanks to new sustainable development goals and global carbon reduction targets - now is the time to start a PPA.
Solar is also a great option in 2018. The current Investment Tax Credit (ITC) allows for 30% of the capital cost to be claimed against the tax liability of a project owner that finances a solar project that commences construction by 2019, after which the credit begins to step down.
Additionally, some solar projects are still eligible for 40% bonus depreciation under the Protecting Americans from Tax Hikes Act of 2015. This accelerated depreciation allows developers to recover eligible capital costs related to solar projects earlier in the project life, and savings are passed through to C&I buyers. The bonus depreciation will begin to step down by 10% annually in 2018.
To learn more about the effect of tax credits on project pricing, and the other economic advantages of renewables for C&I buyers, we invite you to download our white paper.