McGuireWoods’ Durham McCormick wrote an analysis for A Word About Wind’s Feb. 27, 2020, Intelligence Briefing on the begin-construction “whipsaw” following the one-year extension of the federal production tax credit (PTC) for wind energy projects through the Further Consolidated Appropriations Act of 2020.
In the article, McCormick discussed how there is a 20 percent PTC advantage to begin construction of wind projects in 2020 rather than in 2019. Since the IRS’s rules regarding beginning construction are fact driven, and a relatively low bar, developers could find themselves unexpectedly stuck with a 40 percent PTC rate, opposed to the more advantageous 60 percent PTC rate for projects that begin construction in 2020.
“While the PTC extension through 2020 is welcome, we do expect investors and buyers transacting in projects that began construction in 2019 and 2020 to become cautious as to a developer’s 2019 facts. Parties may begin to look more closely at the developer’s work and expenses in 2019 to ensure the project is not locked into the 40 percent PTC rate,” wrote McCormick, a Houston partner who co-leads the firm’s renewable energy team.
He concluded, “[The] market may require developers and sponsors to hold 2019 construction risk through representations or other cash sweep mechanisms. And who knows? A tax insurance product may even develop around the 2019/2020 PTC disparity.”