The Build Back Better Act (BBBA), which passed the US House of Representatives on November 19, 2021, allocates nearly $900 billion to clean energy investments and tax incentives. Democratic Senator Joe Manchin of West Virginia indicated he wouldn’t vote for BBBA, likely thwarting the bill in its current form.
Given bipartisan support for many clean energy provisions in the BBBA, a scaled-back version containing those provisions is expected to be introduced in early 2022.
Following are some noteworthy provisions of the current bill.
The BBBA proposes to extend and modify existing incentives currently set to phase out or expire, including the Section 45 Production Tax Credit (PTC) and the Section 48 Investment Tax Credit (ITC).
The act would expand the scope of qualified investments, which would include stand-alone energy storage property, qualified biogas property, microgrid controllers, and transmission property. More investors could also benefit from a direct-pay option, which is discussed below.
The PTC is currently expired for projects with construction starting after December 31, 2021, but the BBBA would extend the credit to projects beginning construction prior to January 1, 2027. Solar PTC would be revived and extended through 2026.
The base rate of the PTC would be .5 cents per kWh of electricity produced, with a maximum credit of 2.5 cents per kWh of electricity produced when prevailing wage and apprenticeship requirements are met.
A 10% bonus credit would be available for projects that meet the domestic content requirements or those located in qualifying energy or low-income communities.
The BBBA proposes to extend the ITC to projects beginning construction prior to January 1, 2027.
The base rate would be 6% with a maximum credit of 30% when prevailing wage and apprenticeship requirements are met.
A 10% bonus credit would also be available for projects meeting domestic content requirements or are in energy or low-income communities.
Under current law, the ITC started phasing out in 2019.
Credit structures for the PTC and ITC are two-tiered under the BBBA. There’s a base rate and a bonus rate that’s five times the base rate for eligible projects.
Bonus rates would become available at five times the base rate, which is 2.5 cents per kWh for the PTC and 30% of eligible costs for the ITC.
For taxpayers to earn the proposed bonus rates, prevailing wage and apprenticeship requirements to be met include:
BBBA proposals include enhanced incentives for Section 45 PTC and Section 48 ITC:
The BBBA would also provide new credits and incentives for business and nonbusiness-related energy efficiency projects and electric vehicle purchases, including electric bicycles.
Taxpayers owning clean energy facilities that would otherwise qualify for certain credits like the ITC and PTC could make an irrevocable direct pay election, which would be treated as tax paid in the amount of the credit.
If taxpayer liability doesn’t exceed the amount considered paid, the excess could be refunded. Pass-through entities would be paid directly.
The direct-pay option is subject to the domestic content requirement, meaning that a certain portion of the project must be manufactured in the United States. If direct pay is elected but the domestic content requirement isn’t met, the credit would be subject to a phasedown for projects with construction beginning after 2023.
The following alternative fuel credits would extend through 2026:
These credits would extend through 2031:
The BBBA would also provide new credits and incentives for business and nonbusiness-related energy efficiency projects and electric vehicle purchases, including electric bicycles.
New credits and incentives would include:
For more details on how you or your company could be affected by these potential changes, contact your Moss Adams professional. You can also learn more about topics affecting the renewable energy industry.