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Congress Has Passed a COVID Relief Bill Keeping the Federal Solar Tax Credit at 26% for 2021

The U.S. Congress on Monday passed a massive spending bill that includes $35 billion in energy research and development programs, a two-year extension of the Investment Tax Credit for solar power, a one-year extension of the Production Tax Credit for wind power projects, and an extension through 2025 for offshore wind tax credits — a significant last-minute boost for clean energy industries. 

The extensions will be welcome relief for renewable energy industries that have pointed to coronavirus-related economic disruptions as threatening to delay projects and reduce their value. They could also set the industries in a more advantageous position to seek further federal policy support as President-elect Joe Biden takes office and seeks to implement ambitious decarbonization goals for the U.S. energy sector, said Ravi Manghani, head of solar research for Wood Mackenzie.

Solar tax credit impacts 

According to a summary shared by Sen. Schumer’s office, the two-year extension of the federal Investment Tax Credit for solar projects will retain the current 26 percent credit for projects that begin construction through the end of 2022, rather than expiring at the end of 2020 as they would have under existing law. The ITC will fall to a 22 percent rate for projects that begin construction by the end of 2023, and then fall to 10 percent for large-scale solar projects and to zero percent for small scale solar projects in 2024. 

Many of the large-scale solar development set to be completed through 2023 have used “safe-harbor” provisions to secure the original 30 percent ITC credit, removing the risk of seeing project financing disrupted by a reduction in the tax credits, Manghani noted. 

But a two-year extension is “a much better outcome than the industry had expected,” Manghani said. It will provide significant upside to solar growth in 2022 through 2025, as more projects can secure the 26 percent and 22 percent credits through “commence-construction” or “safe-harboring” provisions by 2023.  

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