Thursday, March 28, 2013

A Condensed History of the Production Tax Credit (PTC)

After 20 years and many extensions, the federal Production Tax Credit (PTC) expired at the end of 2012, but then miraculously it was once again resurrected in an eleventh hour addendum to the fiscal cliff deal. On Jan. 1, 2013, the final vote of the 112th Congress secured the extension of the PTC. Although 60+ tax provisions were due to expire the last minute deal granted the PTC a stay of execution.

In the final hours of the fiscal cliff negotiations, a provision in the American Taxpayer Relief Act (P.L. 112-240) added a $12 billion, one year extension of the PTC. The $12 billion figure ($12.1 billion to be exact) was estimated by the Congressional Joint Committee on Taxation. Just before 2 A.M. on New Year’s Day 2013, the Senate overwhelming voted in favor of the deal (89-8).

Alongside this most recent extension, a change to the PTC was introduced that relaxed the eligibility requirements for the credit. Renewable energy projects now need only ‘commence construction’ by January 1, 2014, to qualify for the credit, instead of the projects being ‘placed-in-service’ by that date. Further the threshold on tax cuts was dropped to $450,000 from $1,000,000.

No discussion of government support for renewable energy would be complete without at least mentioning American Recovery and Reinvestment Act (ARRA) specifically section 1603 which has had a significant impact on installed renewable energy capacity. (Section 1603 made renewable energy grants available to project developers).

Markets were rattled by the immanent expiration of the PTC at the end of 2012 as concern mounted about an industry which rises and falls on votes by Congress. Nonetheless, the PTC has been a growth engine for renewable energy and it has succeeded in giving investors the confidence to invest.

© 2013, Richard Matthews. All rights reserved.

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