2021 Deloitte Renewable Energy Seminar Resilient, reliable, and recharged - SEPTEMBER 23, 2021
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2021 Deloitte Renewable Energy Seminar Resilient, reliable, and recharged SEPTEMBER 23, 2021
Digging in on
the beginning
of construction
and other ITC
and PTC hot
topics
Brian Americus, Principal, Deloitte Tax LLP
Gary Hecimovich, Partner, Deloitte Tax LLP
Jenny Speck, Senior Manager, Deloitte Tax LLP
Agenda Legislative Proposals 5 Current ITC and PTC Landscape 22 Begun Construction Rules 29 • Physical Work Test 31 • 5% Safe Harbor 37 • Continuity Requirement 41 • Additional Considerations 48 Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 3
Legislative proposals Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 4
Legislative proposals and potential regulatory guidance
Overview
Legislative Update
− House Ways and Means Committee Chairman Neal, Build Back Better Act (H. TBD)
− Legislative Action: Mark-up passed by Ways and Means Committee, along party
lines, on September 15, 2021
− Senate Finance Committee Chairman Wyden, Clean Energy for America Act (S. 2118)
− Legislative Action: Conceptual mark-up passed by Finance Committee, along
party lines, on May 26, 2021
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 5
Credits & Incentives Proposals
Section 48 investment tax credit (ITC)
Build Back Better Act Clean Energy for America Act
• Extends the ITC at full value (30% bonus credit) for certain property that begins • Creates a technology-neutral ITC (or PTC)
construction by 1/1/2032 and placed in service after 12/31/2021, then phases down • Extends current section ITC through calendar year 2023 and restores the
over 2 years (certain exceptions apply) section 48 ITC tax credit rate to 30% for projects that begin construction
• New ITCs for energy storage, transmission property, biogas property, microgrid before 1/1/2024
controllers, dynamic glass, linear generators, zero-emission facilities, and clean • Establishes three additional categories of projects that qualify for an
hydrogen additional 10-percentage point increase –
• 30% bonus credit is available if prevailing wage and apprenticeship requirements are (i) Qualifying nascent clean energy technologies, (ii) projects located in
met; otherwise, credit is reduced to 20% of the statutory credit rate (6% base credit) “energy communities” or (iii) projects with “domestic content”
− Projects that begin construction before date of enactment and projects that are less than • New ITC for energy storage, grid improvement property, clean hydrogen,
one megawatt qualify for the 30% bonus credit
among others
• Complying with certain domestic content requirements allows for either a 10- • The modification imposes a maximum credit rate under the proposal of
percentage point increase or a 2-percentage point increase in the 30% bonus credit 50% regardless of domestic content, location of the project, or
(32% or 40% bonus credit), or 6% base credit (8% base credit), respectively. development of nascent technologies
• Increases solar ITC by up to 10 or 20 percentage points if the project is located in a • Domestic content requirements are phased-in for direct pay option:
low-income community, or part a qualified low-income residential building project or
• Same as Build Back Better Act
a qualified low-income economic benefit project, respectively.
• Domestic content requirements are phased-in for direct pay option:
− Projects that begin construction before 1/1/2024 are exempt from domestic content
requirements to qualify for 100% direct pay
− Projects that begin construction in 2024 and 2025 are subject to a reduced direct pay
values (90% and 85%, respectively) if domestic content requirements are not met
− Projects that begin construction after 2025 must satisfy domestic content requirements to
be eligible for the direct pay option
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 6
Credits & Incentives Proposals (cont.)
Section 45 production tax credit (PTC)
Build Back Better Act Clean Energy for America Act
• Extends the beginning of construction deadline through December 31, 2033 • Creates a technology-neutral PTC (or ITC)
• New PTCs for solar, advanced nuclear, zero emission facilities, and clean • Provides a PTC equal to 2.5 cents per kWh of electricity produced and sold in the
hydrogen 10-year period after a qualifying facility is placed in service
• Extends the election to claim the section 48 ITC in lieu of PTC through • Establishes three additional categories of projects that qualify for an additional
December 31, 2033 10% PTC –
• For wind facilities placed in service before January 1, 2022, the current 60% PTC (i) Qualifying nascent clean energy technologies, (ii) projects located in
phase down value applies “energy communities” or (iii) projects with “domestic content”
• 2.5 cents per kWh bonus credit amount is available if wage and apprenticeship • A qualified facility includes a facility placed in service before 1/1/2023, but only to
requirements are met; otherwise, credit is reduced to 20% of the inflation the extent of the increased amount of electricity produced at the facility by reason
adjusted statutory credit amount (0.50 cent base credit = 2.5 cent x 20%) of either a new power unit placed in service after 12/31/2022, or any efficiency
improvements or additions of capacity placed in service after 12/31/2022
• Complying with certain domestic content requirements allows for a 10%
increase in the 2.5 cent bonus credit amount (2.75 cent), or the 0.50 cent base • Domestic content requirements are phased-in for direct pay option:
credit amount (0.55 cent base credit), respectively − Same as Build Back Better Act
• Domestic content requirements are phased-in for direct pay option:
− Projects that begin construction before 1/1/2024 are exempt from domestic
content requirements to qualify for 100% direct pay
− Projects that begin construction in 2024 and 2025 are subject to a reduced direct
pay values (90% and 85%, respectively) if domestic content requirements are not
met
− Projects that begin construction after 2025 must satisfy domestic content
requirements to be eligible for the direct pay option
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 7
Credits & Incentives Proposals (cont.)
Direct Pay
Build Back Better Act Clean Energy for America Act
• Rather than opting to carry forward “applicable credits” (e.g., sections 30C, 45, 45Q, 48, • The direct pay election must be made “prior to the date the
48C, 48D, 48E, 45W, and 48X) to years when the credits can offset tax liability, under new facility or property (as applicable) is placed in service”
section 6417, taxpayers, including tax-exempt and governmental entities, can elect to be • Taxpayers eligible to make such election include only certain
treated as having made a payment of tax equal to the value of these credits they would tax-exempt and governmental entities entities: (i) any State
otherwise be eligible for utility with a service obligation, (ii) any mutual or cooperative
• If a partnership or S corporation makes an election, the payment received is treated as tax- electric company, or (iii) Indian tribal government
exempt income for purposes of sections 705 and 1366, and a partner’s distributive share of • The direct pay value is reduced for certain facilities failing to
the tax-exempt income is based on such partner’s distributive share of the otherwise meet the domestic content requirement (90%, 85%, and 0% for
applicable credit for each taxable year projects that begin construction in calendar year 2024, 2025,
• The direct pay value is reduced for certain facilities failing to meet the domestic content and 2026, respectively - certain exceptions apply)
requirement (90%, 85%, and 0% for projects that begin construction in calendar year 2024, • Election may be made within 180 days of the property begin
2025, and 2026, respectively - certain exceptions apply) placed in service with a special transition rule applicable to
• Elections must be made not later than the due date (including extensions) of the tax return property placed in service in 2021
for the taxable year for which the applicable credit is determined, but in no event earlier • Applies to property placed in service after 12/31/2020
than 180 days after the date of enactment
• Applies to property placed in service after 12/31/2021
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 8
Credits & Incentives Proposals (cont.)
Wage and Labor Requirements
Build Back Better Act Clean Energy for America Act
• Wage requirements: must pay prevailing rates during the construction of a facility and for the alteration or • Similar wage and apprenticeship requirements as
repair of such facility during the applicable credit period (e.g., 10 years for PTC, 5 years for ITC, etc.) Build Back Better Act
beginning on the date such energy property or facility is placed in service • For the apprenticeship requirement, at least
− A taxpayer can correct its failure to pay prevailing wages by paying an amount equal to the difference 15% of the total labor hours must be
between the amount required to be paid and the amount actually paid plus interest and pay a performed by qualified apprentices
penalty in the amount of $5,000 per laborer / mechanic • The credit amount is reduced to zero if a taxpayer
• Apprenticeship requirements: must ensure that not less than 15% of the total labor hours for projects that fails to comply with the wage and apprenticeship
begin construction in calendar year 2023 and later (otherwise, 5% for projects the construction of which requirements during construction; the credit may
begins before calendar year 2023 and 10% for projects beginning in calendar year 2023) of the total labor be subject to recapture if the failure occurs during
hours for the project during construction, alteration, or repair work on any project are performed by the applicable credit period (e.g., 10 years for PTC)
qualified apprentices. In addition, must meet a specified ratio of apprentice-to-journeyworker based on the • The taxpayer may cure its failure by paying a similar
standard set by the Department of Labor (certain exceptions apply) to such penalty provision in the Build Back Better
− If a project fails to satisfy these requirements, the taxpayer must pay the IRS a penalty equal to $500 Act
per hour of apprenticeship requirement that has not been met, not to exceed the value of the tax • Applies to facilities with a maximum output of at
benefit, unless the taxpayer demonstrates a lack of qualified apprentices in the geographic area of least one megawatt, which is placed in service after
the construction, alteration, or repair work, and makes a good faith effort to comply, or makes a 12/31/2022, among other requirements
request to hire qualified apprentices from a registered apprenticeship program and such request is
denied
• Applies to facilities with a maximum output of at least one megawatt and the construction of which
commences after the date of enactment
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 9
Credits & Incentives Proposals (cont.)
Domestic Content
Build Back Better Act Clean Energy for America Act
• In the case of any qualified facility or energy project, the credit rate is increased by 10 percentage points with respect to property • Same as Build Back Better Act
certified by the taxpayer (prior to the end of the taxable year in which such facility is placed in service) to be composed of steel,
iron, or manufactured products used in the construction of such facility or energy project was produced in the United States
− 49 CFR sec. 661.5(b) provides “all steel and iron manufacturing processes must take place in the United States, except
metallurgical processes involving refinement of steel additives.”
• For purposes of steel and iron, this requirement shall be applied consistent with section 661.5(b) of title 49, Code of Federal
Regulations. In the case of manufactured products, the manufactured product shall be considered manufactured in the United
States if the cost of the components of the manufactured product that are mined, produced, or manufactured in the United
States is greater than 55 percent of the total cost of all components of the manufactured product
• Certain exceptions apply
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 10Comparison credit summary tables
Build Back Better Act – ITC Credit Summary Table
For Projects
Placed in
Service For Projects Placed in Service After 12/31/2021*
Before
1/1/2022
Section 48 ITC Direct Pay
Without Domestic
Without Domestic Content With Domestic Content** With Domestic Content**
Placed in Service ITC Amount Content***
Date Construction Begins
(Continuity Safe Harbor) (Phase-Down) Base Base Bonus
Base Credit Bonus Credit Bonus Credit Bonus Credit Base Credit
Credit Credit Credit
Before Calendar 2016 2022 30% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2017 2023 30% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2018 2024 30% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2019 2025 30% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2020 2025 26% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2021 2025 26% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2022 and 2023 The Continuity Safe 100% 6.0% 30% 8.0% 40% 8.0% 40% 6.0% 30%
Solar
During Calendar 2024 Harbor period is four 100% 6.0% 30% 8.0% 40% 8.0% 40% 5.4% 27%
During Calendar 2025 years from the calendar 100% 6.0% 30% 8.0% 40% 8.0% 40% 5.1% 25.5%
year in which
During Calendar 2026-2031 100% 6.0% 30% 8.0% 40% 8.0% 40%
construction began for
During Calendar 2032 80% 5.2% 26% 7.2% 36% 7.2% 36%
energy property that
During Calendar 2033 begins construction after 60% 4.4% 22% 6.4% 32% 6.4% 32%
After Calendar 2033 or Not Placed in Service calendar year 2020. 0%
By 2035 2.0% 10% 4.0% 20% 4.0% 20%
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the statutory credit amount). However, projects with a
net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these projects to satisfy the labor
requirements reduces the statutory credit amount to the "base credit" amount (20% of the statutory credit amount).
**Projects NOT subject to labor requirements (maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment) that are placed in service after the date of enactment and certified as having satisfied certain domestic content
requirements qualify for a 10 percentage point increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship), or a 2 percentage point increase (2%) for satisfying only one of the two labor requirements (prevailing wage or
apprenticeship). Projects subject to labor requirements (maximum net output of at least 1 megawatt and that begin construction on or after the date of enactment) and certified as having satisfied certain domestic content requirements qualify for a 10 percentage point
increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship) and a 2 percentage point increase (2%) if the project fails to satisfy both labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 11Comparison credit summary tables
Build Back Better Act – ITC Credit Summary Table (cont.)
For Projects
Placed in
For Projects Placed in Service After 12/31/2021*
Service Before
1/1/2022
Section 48 ITC Direct Pay
Without Domestic
Without Domestic Content With Domestic Content** With Domestic Content**
Placed in Service ITC Amount Content***
Date Construction Begins
(Continuity Safe Harbor) (Phase-Down) Base Base Bonus
Base Credit Bonus Credit Bonus Credit Bonus Credit Base Credit
Credit Credit Credit
During Calendar 2016 2022 30% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2017 2023 24% 24% 24% 26% 26% 34% 26% 26% 34% 24% 24%
During Calendar 2018 2024 18% 18% 18% 20% 20% 28% 20% 20% 28% 18% 18%
During Calendar 2019 2025 12% 12% 12% 14% 14% 22% 14% 14% 22% 12% 12%
During Calendar 2020 2025 18% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
During Calendar 2021 2025 18% 30% 30% 32% 32% 40% 32% 32% 40% 30% 30%
The Continuity Safe
Wind During Calendar 2022 and 2023 6.0% 30% 8.0% 40% 8.0% 40% 6.0% 30%
Harbor period is four
During Calendar 2024 6.0% 30% 8.0% 40% 8.0% 40% 5.4% 27%
years from the calendar
During Calendar 2025 6.0% 30% 8.0% 40% 8.0% 40% 5.1% 25.5%
year in which
During Calendar 2026-2031 construction began for a 6.0% 30% 8.0% 40% 8.0% 40%
qualified facility that
During Calendar 2032 4.8% 24% 6.8% 34% 6.8% 34%
begins construction after
During Calendar 2033 3.6% 18% 5.6% 28% 5.6% 28%
calendar year 2020.
After Calendar 2033 0%
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the statutory credit amount). However, projects with a
net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these projects to satisfy the labor
requirements reduces the statutory credit amount to the "base credit" amount (20% of the statutory credit amount).
**Projects NOT subject to labor requirements (maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment) that are placed in service after the date of enactment and certified as having satisfied certain domestic content
requirements qualify for a 10 percentage point increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship), or a 2 percentage point increase (2%) for satisfying only one of the two labor requirements (prevailing wage or
apprenticeship). Projects subject to labor requirements (maximum net output of at least 1 megawatt and that begin construction on or after the date of enactment) and certified as having satisfied certain domestic content requirements qualify for a 10 percentage point
increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship) and a 2 percentage point increase (2%) if the project fails to satisfy both labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 12Comparison credit summary tables
Build Back Better Act – ITC Credit Summary Table (cont.)
For Projects Placed
in Service Before For Projects Placed in Service After 12/31/2021*
1/1/2022
Section 48 ITC Direct Pay
Without Domestic
Without Domestic Content With Domestic Content** With Domestic Content**
Placed in Service (Continuity Content***
Date Construction Begins ITC Amount
Safe Harbor)
Base Base Bonus
Base Credit Bonus Credit Bonus Credit Bonus Credit Base Credit
Credit Credit Credit
Before Calendar 2022 30% 30% 30% 32% 40% 32% 40% 30% 30%
During Calendar 2022 and 2023 100% 6% 30% 8% 32% 40% 8% 32% 40% 6.0% 30%
During Calendar 2024 The Continuity Safe Harbor 100% 6% 30% 8% 32% 40% 8% 32% 40% 5.4% 27%
is 10 years for a qualified
During Calendar 2025 100% 6% 30% 8% 32% 40% 8% 32% 40% 5.1% 25.5%
Qualified Offshore Wind facility construction project
During Calendar 2026-2031 that is an offshore 100% 6% 30% 8% 32% 40% 8% 32% 40% - -
During Calendar 2032 project**** 80% 6% 30% 8% 32% 40% 8% 32% 40% - -
During Calendar 2033 60% 6% 30% 8% 32% 40% 8% 32% 40% - -
After Calendar 2033 0% - - - - - - - -
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the statutory credit amount). However, projects with a
net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these projects to satisfy the labor
requirements reduces the statutory credit amount to the "base credit" amount (20% of the statutory credit amount).
**Projects NOT subject to labor requirements (maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment) that are placed in service after the date of enactment and certified as having satisfied certain domestic content
requirements qualify for a 10 percentage point increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship), or a 2 percentage point increase (2%) for satisfying only one of the two labor requirements (prevailing wage or
apprenticeship). Projects subject to labor requirements (maximum net output of at least 1 megawatt and that begin construction on or after the date of enactment) and certified as having satisfied certain domestic content requirements qualify for a 10 percentage point
increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship) and a 2 percentage point increase (2%) if the project fails to satisfy both labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
****As defined in Notice 2021-05
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 13Comparison credit summary tables
Build Back Better Act – ITC Credit Summary Table (cont.)
For Projects
Placed in Service For Projects Placed in Service After 12/31/2021*
Before 1/1/2022
Section 48 ITC Direct Pay
Without Domestic Without Domestic
Placed in Service With Domestic Content** With Domestic Content**
ITC Amount Content Content***
Date Construction Begins (Continuity Safe
(Phase-Down) Bonus Base Base Bonus
Harbor) Base Credit Bonus Credit Bonus Credit Base Credit
Credit Credit Credit Credit
Before Calendar 2016 2022 30% 30% 30% 32% 32% 40% 30% 32% 40% 30% 30%
During Calendar 2017 2023 30% 30% 30% 32% 32% 40% 30% 32% 40% 30% 30%
During Calendar 2018 2024 30% 30% 30% 32% 32% 40% 30% 32% 40% 30% 30%
During Calendar 2019 2025 30% 30% 30% 32% 32% 40% 30% 32% 40% 30% 30%
During Calendar 2020 2025 26% 30% 30% 32% 32% 40% 30% 32% 40% 30% 30%
Qualified Fuel Cell During Calendar 2021 2025 26% 30% 30% 32% 32% 40% 30% 32% 40% 30% 30%
Qualified Small Wind Energy During Calendar 2022 and
Waste Energy Recovery 2023 The Continuity Safe 6.0% 30% 8.0% 40% 8.0% 40% 6.0% 30%
Energy Storage Technology During Calendar 2024 Harbor period is four 6.0% 30% 8.0% 40% 8.0% 40% 5.4% 27%
Qualified Biogas During Calendar 2025 years from the 6.0% 30% 8.0% 40% 8.0% 40% 5.1% 25.5%
Qualified Microgrid calendar year in
Fiber Optic/Electrochromic Glass Solar During Calendar 2026-2031 which construction 6.0% 30% 8.0% 40% 8.0% 40% - -
During Calendar 2032 began for energy 5.2% 26% 7.2% 36% 7.2% 36% - -
During Calendar 2033 property that begins 4.4% 22% 6.4% 32% 6.4% 32% - -
construction after
After Calendar 2033 or not calendar year 2020.
placed in service by 2035 - - - - - - -
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the statutory credit amount). However, projects with a net
maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these projects to satisfy the labor
requirements reduces the statutory credit amount to the "base credit" amount (20% of the statutory credit amount).
**Projects NOT subject to labor requirements (maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment) that are placed in service after the date of enactment and certified as having satisfied certain domestic content
requirements qualify for a 10 percentage point increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship), or a 2 percentage point increase (2%) for satisfying only one of the two labor requirements (prevailing wage or
apprenticeship). Projects subject to labor requirements (maximum net output of at least 1 megawatt and that begin construction on or after the date of enactment) and certified as having satisfied certain domestic content requirements qualify for a 10 percentage point
increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship) and a 2 percentage point increase (2%) if the project fails to satisfy both labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements are
eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 14Comparison credit summary tables
Build Back Better Act – ITC Credit Summary Table (cont.)
For Projects
Placed in Service For Projects Placed in Service After 12/31/2021*
Before 1/1/2022
Section 48 ITC Direct Pay
Without Domestic Without Domestic
With Domestic Content** With Domestic Content**
Placed in Service Content Content***
Date Construction Begins ITC Amount
(Continuity Safe Harbor)
Bonus Base Base Bonus
Base Credit Bonus Credit Bonus Credit Base Credit
Credit Credit Credit Credit
Before Calendar 2016 2022 10% 0.50 10% 4.0% 12% 20% 4.0% 12% 20% 0.50 10%
During Calendar 2017 2023 10% 0.40 10% 4.0% 12% 20% 4.0% 12% 20% 0.40 10%
During Calendar 2018 2024 10% 0.30 10% 4.0% 12% 20% 4.0% 12% 20% 0.30 10%
During Calendar 2019 2025 10% 0.20 10% 4.0% 12% 20% 4.0% 12% 20% 0.20 10%
During Calendar 2020 2025 10% 0.50 10% 4.0% 12% 20% 4.0% 12% 20% 0.30 10%
During Calendar 2021 2025 10% 0.50 10% 4.0% 12% 20% 4.0% 12% 20% 0.30 10%
Qualified Microturbine During Calendar 2022
The Continuity Safe
Combine Heat and Power and 2023 10% 2.0% 10% 4.0% 12% 20% 4.0% 12% 20% 2.0% 10%
Harbor period is four
During Calendar 2024 10% 2.0% 10% 4.0% 12% 20% 4.0% 12% 20% 1.8% 9%
years from the calendar
During Calendar 2025 10% 2.0% 10% 4.0% 12% 20% 4.0% 12% 20% 1.7% 8.5%
year in which
During Calendar 2026-
construction began for
2031 10% 2.0% 10% 4.0% 12% 20% 4.0% 12% 20% - -
energy property that
During Calendar 2032 10% 2.0% 10% 4.0% 12% 20% 4.0% 12% 20% - -
begins construction after
During Calendar 2033 10% 2.0% 10% 4.0% 12% 20% 4.0% 12% 20% - -
calendar year 2020.
After Calendar 2033 0% 2.0% 10% 4.0% 12% 20% - - -
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the statutory credit amount). However, projects with a
net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these projects to satisfy the labor
requirements reduces the statutory credit amount to the "base credit" amount (20% of the statutory credit amount).
**Projects NOT subject to labor requirements (maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment) that are placed in service after the date of enactment and certified as having satisfied certain domestic content
requirements qualify for a 10 percentage point increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship), or a 2 percentage point increase (2%) for satisfying only one of the two labor requirements (prevailing wage or
apprenticeship). Projects subject to labor requirements (maximum net output of at least 1 megawatt and that begin construction on or after the date of enactment) and certified as having satisfied certain domestic content requirements qualify for a 10 percentage point
increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship) and a 2 percentage point increase (2%) if the project fails to satisfy both labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 15Comparison credit summary tables
Build Back Better Act – ITC Credit Summary Table (cont.)
For Projects
Placed in Service For Projects Placed in Service After 12/31/2021*
Before 1/1/2022
Section 48 ITC Direct Pay
Without Domestic Without Domestic
Placed in Service With Domestic Content** With Domestic Content**
Content Content***
Date Construction Begins (Continuity Safe ITC Amount
Harbor) Bonus Base Base Bonus
Base Credit Bonus Credit Bonus Credit Base Credit
Credit Credit Credit Credit
Before Calendar 2016 2022 30% 0.50 30% 8.0% 32% 40% 8.0% 32% 40% 50% 30%
During Calendar 2017 2023 30% 0.40 30% 8.0% 32% 40% 8.0% 32% 40% 40% 30%
During Calendar 2018 2024 30% 0.30 30% 8.0% 32% 40% 8.0% 32% 40% 30% 30%
During Calendar 2019 2025 30% 0.20 30% 8.0% 32% 40% 8.0% 32% 40% 20% 30%
Geothermal During Calendar 2020 2025 30% 0.50 30% 8.0% 32% 40% 8.0% 32% 40% 30% 30%
Geothermal heat pump During Calendar 2021 2025 30% 0.50 30% 8.0% 32% 40% 8.0% 32% 40% 30% 30%
Closed-loop biomass During Calendar 2022 The Continuity Safe
Open-loop biomass and 2023 100% 6.0% 30% 8.0% 100% 40% 8.0% 100% 40% 6.0% 30%
Harbor period is four
Municipal solid waste (landfill gas, trash) During Calendar 2024 100% 6.0% 30% 8.0% 100% 40% 8.0% 100% 40% 5.4% 27%
years from the calendar
Hydropower
During Calendar 2025 year in which 100% 6.0% 30% 8.0% 100% 40% 8.0% 100% 40% 5.1% 25.5%
Marine and hydrokinetic renewables
During Calendar 2026- construction began for
(including small irrigation power)
2031 energy property that 100% 6.0% 30% 8.0% 100% 40% 8.0% 100% 40% - -
During Calendar 2032 begins construction 80% 5.2% 26% 7.2% 80% 36% 7.2% 80% 36% - -
During Calendar 2033 after calendar year 60% 4.4% 22% 6.4% 60% 32% 6.4% 60% 32% - -
After Calendar 2033 2020. 0% - - ? 0% - 0% - - -
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the statutory credit amount). However, projects with a
net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these projects to satisfy the labor
requirements reduces the statutory credit amount to the "base credit" amount (20% of the statutory credit amount).
**Projects NOT subject to labor requirements (maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment) that are placed in service after the date of enactment and certified as having satisfied certain domestic content
requirements qualify for a 10 percentage point increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship), or a 2 percentage point increase (2%) for satisfying only one of the two labor requirements (prevailing wage or
apprenticeship). Projects subject to labor requirements (maximum net output of at least 1 megawatt and that begin construction on or after the date of enactment) and certified as having satisfied certain domestic content requirements qualify for a 10 percentage point
increase (10%) if the project satisfies both labor requirements (prevailing wage and apprenticeship) and a 2 percentage point increase (2%) if the project fails to satisfy both labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 16Comparison credit summary tables
Build Back Better Act – PTC Credit Summary Table
For Projects Placed in
For Projects Placed in Service After 12/31/2021*
Service Before 1/1/2022
Section 45 PTC Direct Pay
2021 Without Domestic With Domestic With Domestic Without Domestic
Placed in Service
Phase-out Inflation Phase-out Content Content** Content** Content***
Date Construction Begins (Continuity Safe
Percentage Adjusted Percentage
Harbor) Bonus Bonus Bonus Bonus
PTC Amount Base Credit Base Credit Base Credit Base Credit
Credit Credit Credit Credit
During Calendar 2016 2022 100% 2.50 100% 2.50 2.50 0.51 2.75 0.51 2.75 2.50 2.50
During Calendar 2017 2023 80% 2.00 80% 2.00 2.00 0.41 2.20 0.41 2.20 2.00 2.00
During Calendar 2018 2024 60% 1.50 60% 1.50 1.50 0.31 1.65 0.31 1.65 1.50 1.50
During Calendar 2019 2025 40% 1.00 40% 1.00 1.00 0.21 1.10 0.21 1.10 1.00 1.00
During Calendar 2020 2025 60% 1.50 100% 2.50 2.50 2.75 0.51 2.75 2.50 2.50
During Calendar 2021 2025 60% 1.50 100% 2.50 2.50 0.51 2.75 0.51 2.75 2.50 2.50
The Continuity Safe
Wind During Calendar 2022 and 2023 Harbor period is four 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2024 years from the 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.45 2.25
During Calendar 2025 calendar year in which 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.43 2.13
construction began for
During Calendar 2026-2031 a qualified facility that 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 - -
During Calendar 2032 begins construction 80% 80% 0.40 2.00 0.44 2.20 0.44 2.20 - -
During Calendar 2033 after calendar year 60% 60% 0.30 1.50 0.33 1.65 0.33 1.65 - -
After Calendar 2033 2020. 0% 0% - - - - - - - -
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the inflation adjusted statutory credit amount).
However, projects with a net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these
projects to satisfy the labor requirements reduces the statutory credit amount to the "base credit" amount (20% of the inflation adjusted statutory credit amount).
**Projects placed in service after the date of enactment and certified as having satisfied certain domestic content requirements qualify for a 10% increase (110%) in the "base credit" or "bonus credit" amount otherwise determined after considering compliance with
applicable labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 17Comparison credit summary tables
Build Back Better Act – PTC Credit Summary Table
For Projects Placed in
For Projects Placed in Service After 12/31/2021*
Service Before 1/1/2022
Section 45 PTC Direct Pay
Without Domestic
Placed in Service 2021 Inflation Without Domestic Content With Domestic Content** With Domestic Content**
Phase-out Phase-out Content***
Date Construction Begins (Continuity Safe Adjusted PTC
Percentage Percentage
Harbor) Amount Bonus
Base Credit Bonus Credit Base Credit Bonus Credit Base Credit Bonus Credit Base Credit
Credit
During Calendar 2016 2022 0% 0.00 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2017 2023 0% 0.00 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2018 2024 0% 0.00 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2019 2025 0% 0.00 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2020 2025 0% 0.00 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2021 2025 0% 0.00 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2022 and The Continuity
2023 Safe Harbor 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.50 2.50
During Calendar 2024 period is four 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.45 2.25
Solar During Calendar 2025 years from the 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 0.43 2.13
During Calendar 2026- calendar year in
2031 which 100% 100% 0.50 2.50 0.55 2.75 0.55 2.75 - -
During Calendar 2032 construction 80% 80% 0.40 2.00 0.44 2.20 0.44 2.20 - -
During Calendar 2033 began for a 60% 60% 0.30 1.50 0.33 1.65 0.33 1.65 - -
qualified facility
that begins
construction after 0% 0%
calendar year
After Calendar 2033 2020. - - - - - -
*Projects with a maximum net output of less than 1 megawatt or which commence construction prior to the date of enactment are NOT subject to labor requirements and are eligible for the "bonus credit" amount (the inflation adjusted statutory credit amount).
However, projects with a net maximum output of at least 1 megawatt and that begin construction on or after the date of enactment must satisfy new labor requirements (prevailing wage and apprenticeship) to be eligible for the "bonus credit" amount. Failure for these
projects to satisfy the labor requirements reduces the statutory credit amount to the "base credit" amount (20% of the inflation adjusted statutory credit amount).
**Projects placed in service after the date of enactment and certified as having satisfied certain domestic content requirements qualify for a 10% increase (110%) in the "base credit" or "bonus credit" amount otherwise determined after considering compliance with
applicable labor requirements.
***Domestic content requirements are "phased-in" for purposes of determining the direct pay percentage. Projects that begin construction before January 1, 2024 are NOT subject to domestic content requirements to qualify for 100% direct pay. Projects that begin
construction during calendar 2024 and fail domestic content requirements are eligible for direct pay at 90% of the "base credit" or "bonus credit" amount otherwise available. Projects that begin construction during calendar 2025 and fail domestic content requirements
are eligible for direct pay at 85%. And projects that begin construction after 2025 and fail to satisfy domestic content requirements are ineligible for direct pay (direct pay percentage equals 0%).
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 18Investment Tax Credit (“ITC”) and Production Tax Credit (“PTC”) Current Landscape Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 19
Begun construction background
Under current law, a taxpayer may claim 60 percent of the value of PTCs or the 18% ITC in lieu of PTC on a
new qualified wind facility or 26% ITC on new solar energy property only if construction of the facility
begins before January 1, 2024 (the Begun Construction Requirement) for solar and January 1, 2022 for
wind, respectively
• The full credit amounts (100 percent of the value of PTCs or the 30% ITC) were available if construction on
a wind facility began before January 1, 2017
• The full credit amount (30% ITC) was available if construction on solar energy property began before
January 1, 2020 (and placed in service before January 1, 2026)
American Taxpayer Relief Act of 2012 was enacted January 2, 2013
• Changed eligibility for certain PTC and ITC in lieu of PTC technologies from a “placed-in-service” date
requirement to a requirement that a facility must have “begun construction” by a certain deadline
• Based on recent American Recovery and Reinvestment Act section 1603 Treasury Grant Program
implementation
Consolidated Appropriations Act of 2021 enacted on December 27, 2020, provided the current extension
and phase out
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 20Credit summary tables
Investment tax credit
Type of Energy Property Date Construction Begins Placed in Service Date ITC Amount
Solar Before Calendar 2020 Before Calendar 2026 30%
During Calendar 2020, 2021, or 2022 Before Calendar 2026 26%
During Calendar 2023 Before Calendar 2026 22%
Before Calendar 2024 During or After Calendar 2026 10%
During or After Calendar 2024 N/A 10%
Fiber-Optic Solar Before Calendar 2020 Before Calendar 2026 30%
During Calendar 2020, 2021, or 2022 Before Calendar 2026 26%
During Calendar 2023 Before Calendar 2026 22%
Before Calendar 2024 During or After Calendar 2026 0%
During or After Calendar 2024 N/A 0%
Qualified Fuel Cell Before Calendar 2020 Before Calendar 2026 30%
During Calendar 2020, 2021, or 2022 Before Calendar 2026 26%
During Calendar 2023 Before Calendar 2026 22%
Before Calendar 2024 During or After Calendar 2026 0%
During or After Calendar 2024 N/A 0%
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 21Credit summary tables
Investment tax credit (cont.)
Type of Energy Property Date Construction Begins Placed in Service Date ITC Amount
Qualified Small Wind Before Calendar 2020 Before Calendar 2026 30%
During Calendar 2020, 2021, or 2022 Before Calendar 2026 26%
During Calendar 2023 Before Calendar 2026 22%
Before Calendar 2024 During or After Calendar 2026 0%
During or After Calendar 2024 N/A 0%
Qualified Microturbine Before Calendar 2024 Any 10%
During or After Calendar 2024 N/A 0%
Combined Heat and Power (CHP) Before Calendar 2024 Any 10%
During or After Calendar 2024 N/A 0%
Geothermal Heat Pump Before Calendar 2024 Any 10%
During or After Calendar 2024 N/A 0%
Geothermal Any Any 10%
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 22Credit summary tables
Investment tax credit – new provisions
Type of Energy Property Date Construction Begins Placed in Service Date ITC Amount
Waste Energy Recovery Before Calendar 2020 Before Calendar 2026 30%
During Calendar 2020, 2021, or 2022 Before Calendar 2026 26%
During Calendar 2023 Before Calendar 2026 22%
Before Calendar 2024 During or After Calendar 2026 0%
During or After Calendar 2024 N/A 0%
Qualified Offshore Wind Before Calendar 2026 Any w/ special 10 year deemed continuity period 30%
During or After Calendar 2026 N/A 0%
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 23Credit summary tables
PTC and ITC in lieu of PTC
Qualified Resources/Facilities Credit Amount Date Construction Begins Phase-out ITC Election
for 2020 (PTC Amount)
Wind 2.5 cents/kwh Before Calendar 2017 100% 30%
During Calendar 2017 80% 24%
During Calendar 2018 60% 18%
During Calendar 2019 40% 12%
During Calendar 2020 or 2021 60% 18%
Geothermal 2.5 cents/kwh Before Calendar 2022 100% 30%
Closed-loop biomass 2.5 cents/kwh Before Calendar 2022 100% 30%
Open-loop biomass 1.3 cent/kwh Before Calendar 2022 100% 30%
Municipal solid waste (landfill gas, trash) 1.3 cent/kwh Before Calendar 2022 100% 30%
Hydropower 1.3 cent/kwh Before Calendar 2022 100% 30%
Marine and hydrokinetic renewables 1.3 cent/kwh Before Calendar 2022 100% 30%
(including small irrigation power)
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 24Begun Construction Rules First Prong: Beginning of Construction Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 25
Investment tax credit (ITC) and production tax credit (PTC) Prong 1 – Begun Construction Requirement The IRS provides two methods for taxpayers to establish the beginning of construction to claim the section 45 PTC or section 48 ITC. 1. 5% Safe Harbor – Having paid or incurred at least five percent of the total cost of the depreciable basis of the facility or energy property, excluding land and property not integral to the facility. Integral part means all property used directly in the production of electricity from the renewable resource (a qualifying activity) and all property necessary for the completeness of the activity. 2. Physical Work Test – Starting physical work of a significant nature (“PWSN”) onsite or offsite related to a qualified facility or energy property. Work may be performed by a third party on behalf of a taxpayer (i.e., through a vendor). The test focuses on the nature of work performed, not the amount or the cost paid or incurred. PWSN does not include preliminary activities, such as designing, research, environmental studies, or removal of existing foundations or work to produce property that is existing inventory or is normally held in inventory by a vendor. Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 26
Beginning of Construction: Physical Work Test Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 27
Physical work test
Facility and Energy Property Defined
A facility or energy property generally include all components of property that function interdependently
• Components of property are functionally interdependent if the placing in service of each of the components is dependent upon
the placing in service of each of the other components in order to generate electricity
▪ Example: On a wind farm, an electricity-generating wind turbine, its tower and supporting pad comprise a single facility
For purposes of determining whether construction of a facility or energy property has begun, multiple facilities that are
operated as part of a single project (or energy properties that are operated as a single energy property) will be treated as a
single facility
Example factors indicating that multiple facilities (or energy properties) are operated as a single project include:
Single Project Factors
• The facilities are owned by a single legal entity; • The facilities share a common substation;
• The facilities are constructed on contiguous pieces of • The facilities are described in one or more common
land; environmental or other regulatory permits;
• The facilities are described in a common power • The facilities were constructed pursuant to a single master
purchase agreement or agreements; construction contract; and
• The construction of the facilities was financed pursuant to the
• The facilities have a common intertie;
same loan agreement
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 28Physical Work Test
A taxpayer may demonstrate PWSN with both on-site and off-site work (performed either by the taxpayer or by
another person under a binding written contract)
On-Site Examples On-Site Examples
• Excavation for the foundation; setting of anchor Fiber-Optic • Installation of collectors, concentrators, tracking
bolts into the ground; or pouring of concrete pads Solar Energy systems, bundles of optical fibers, or fixtures
for the foundation. Property within a structure.
• Roads that are integral to the facility (roads for
Wind Facilities • Installation of components of a fuel cell stack
equipment to operate and maintain the qualified Qualified Fuel
facility), custom machinery or equipment, or assembly, such as electrodes, gas diffusion layers,
Cell Property
Structure that houses property integral to the membranes, gasketing or plates.
activity of the facility. Qualified • Installation of a gas turbine engine, combustor,
Hydropower • Excavation for or construction of a penstock, power Microturbine recuperator, regenerator, generator, alternator, or
Facilities house, or retaining wall structure. Property other plant components.
• Site improvements (as opposed to site clearing),
Biomass and • Installation of a heat engine, generator, heat
such as filling or compacting soil, or installing stack
Trash Facilities CHP recovery components, or electrical
piling.
interconnections.
• Physical activities undertaken at a project site after a
Geothermal valid discovery, such as the installation of piping, Qualified Small • Installation of a foundation, tower, wiring or
Facilities turbines, generators, flash tanks, or heat Wind Property grounding systems.
exchangers. Geothermal
• Installation of ground heat exchangers, heat
• Installation of racks or other structures to affix Heat Pump
Solar pump units or air delivery systems (ductwork).
photovoltaic panels, collectors or solar cells to site. Property
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 29Physical Work Test
Off-Site Examples:
Examples from IRS Notices: Other Industry
• Physical work on a custom-designed transformer that steps up the voltage Examples:
of electricity produced at the facility to the voltage needed for transmission
is PWSN with respect to the facility because power conditioning equipment
is an integral part of the activity performed by the facility. • Nacelles;
• Regarding construction of step-up transformers and other major • Switchgear;
components. The IRS has said specifically: “If the facility’s wind turbines • Digester tanks from
Wind Facilities
and tower units are to be assembled on-site from components
waste to energy
manufactured off-site by a person other than the taxpayer and delivered to
the site, PWSN begins when the manufacture of the components begins at facilities; and
the off-site location, but only if (i) the manufacturer’s work is done • Foundations
pursuant to a binding written contract and (ii) these components are not support structures.
held in the manufacturer’s inventory.
• Manufacture of components, mounting equipment, support structures,
Solar such as racks and rails, inverters, and transformers and other power
conditioning equipment.
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 30Physical Work Test
Binding Written Contract: Any work performed by a contractor is taken into account for PWSN only if it was done under
a binding written contract with the taxpayer and the contract was in place before the work began
A contract is binding only if:
1. The agreement must be enforceable under local law;
2. The agreement must not limit damages to less than 5% of the total contract price;
3. The agreement must not be an “option” and will require forfeiture of more than a “nominal” amount (e.g., 5
percent of the contract price); and
4. The agreement must not have a substantial modification.
Other industry considerations:
1. No clause allowing termination for convenience;
2. No suspensions; and
3. No returns or exchanges.
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 31Physical Work Test
Preliminary Activities Exclusion: Even if the cost of the preliminary activities is properly included in the depreciable basis of the
facility, preliminary activities do not count towards PWSN
Preliminary Activities Examples
• Planning and designing; • Clearing a site; Obtaining permits and licenses;
• Conducting environmental and • Researching; • Removing existing turbines and
engineering studies; • Conducting test drilling to towers, solar panels, or any
• Securing financing; determine soil condition; components that will no longer
• Performing activities to develop • Conducting geological mapping be part of the facility; and
a geothermal deposit prior to and modeling; • Conducting geophysical, gravity,
valid discovery; • Excavating to change the magnetic, seismic and resistivity
• Exploring; contour of the land; surveys
Other Excluded Activities:
Inventory Exclusion: • Roads primarily for access to the site, or roads used primarily for
PWSN does not include work to produce employee or visitor vehicles are not integral to the activity performed
property that is in existing inventory or is by the facility;
normally held in inventory by a vendor • Fencing; and
• Buildings not integral to the activity of the facility
Copyright © 2021 Deloitte Development LLC. All rights reserved. 2021 Deloitte Renewable Energy Seminar 32You can also read
