2019 Deloitte Renewable Energy Seminar · 2020-02-12 · Physical work on a custom-designed...

2019 Deloitte Renewable Energy SeminarPowering a bright futureOctober 2-4, 2019

Understanding the beginning of construction

for safe harboring solar & offshore wind

projects

Brian Americus, Principal, Deloitte Tax LLPGary Hecimovich, Partner, Deloitte Tax LLP

Copyright © 2019 Deloitte Development LLC. All rights reserved. 32019 Deloitte Renewable Energy Seminar

ITC and PTC Landscape 4

Begun Construction Rules 11

o Physical Work Test 13

o 5% Safe Harbor 19

o Continuity Requirement 22

o Additional Considerations 25

Common Begun Construction Strategies for Solar 27

Common Begun Construction Strategies for Onshore Wind 31

Common Begun Construction Strategies for Offshore Wind 35

Contents


Investment Tax Credit (“ITC”) andProduction Tax Credit (“PTC”)Current Landscape


Begun Construction Background

• Under current law, a taxpayer may claim 40 percent of the value of PTCs or the 12% ITC in lieu of PTC on a new qualified wind facility or 30% ITC on new solar energy property only if construction of the facility begins before January 1, 2020 (the Begun Construction Requirement)

• 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 credit amounts phase down by 20 percent each year after 2016 and phase out completely for facilities that do not begin construction before January 1, 2020

• 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

• Protecting American from Tax Hikes Act of 2015 (PATH Act) and Consolidated Appropriations Act of 2015 enacted on December 18, 2015, provided the current long term extension and phase out


Type of Energy Property

Date Construction Begins Placed in Service Date ITC Amount

Solar

Before 1/1/2020 Before 1/1/2024 30%Calendar 2020 Before 1/1/24 26%Calendar 2021 Before 1/1/24 22%Before 1/1/22 On or after 1/1/24 10%

On or after 1/1/22 Any 10%

Fiber-Optic Solar


On or after 1/1/22 N/A 0%

Qualified Fuel Cell



Investment Tax Credit


Type of Energy Property Date Construction Begins

Placed in Service Date ITC Amount

Qualified Small Wind



Qualified MicroturbineBefore 1/1/22 Any 10%


Combined Heat and Power (CHP)

Before 1/1/22 Any 10%On or after 1/1/22 N/A 0%

Geothermal Heat PumpBefore 1/1/22 Any 10%

On or After 1/1/22 N/A 0%

Geothermal Any Any 10%

Investment Tax Credit


Qualified Resources/Facilities

Credit Amount for 2019

Date Construction Begins

Phase-out (PTC

Amount)ITC Election

Wind 2.5 cents/kwh

Before 1/1/2017 100% 30%Calendar 2017 80% 24%Calendar 2018 60% 18%Calendar 2019 40% 12%

Geothermal 2.5cents/kwh Before 1/1/2018 None 30%Closed-loop biomass 2.5 cents/kwh Before 1/1/2018 None 30%Open-loop biomass 1.2 cent/kwh Before 1/1/2018 None 30%Municipal solid waste (landfill gas, trash)

1.2 cent/kwh Before 1/1/2018 None 30%

Hydropower 1.2 cent/kwh Before 1/1/2018 None 30%Marine and hydrokinetic renewables (including small irrigation power)

1.2 cent/kwh Before 1/1/2018 None 30%

Production Tax Credit (PTC) and ITC in lieu of PTC

Copyright © 2019 Deloitte Development LLC. All rights reserved. 92019 Deloitte Renewable Energy Seminar9

Tax Credit TimelineBeginning of Construction for Solar ITC Energy Facilities

1/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024 1/1/2025CY 2020 CY 2021 CY 2022 CY 2023 CY 2024

Construction Beginsin 2019

Placed in Service within Four Calendar Years10% ITC30% ITC

CY 2025


Placed in Service within Three Calendar Years 10% ITC

26% ITC


Placed in Service within TwoCalendar Years 10% ITC

22% ITC

Construction Begins

in 202210% ITC


Tax Credit TimelineBeginning of Construction for Wind PTC Energy Facilities

1/1/2017 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022CY 2017 CY 2018 CY 2019 CY 2020 CY 2021

1/1/2023

CY 2023


Placed in Service within Four Calendar YearsFacts & Circumstances100% PTC Value / 30% ITC

CY 2022

1/1/2024


Placed in Service within Four Calendar Years

80% PTC Value / 24% ITC







Continuity Safe Harbor Satisfied if Placed in Service before 1/1/19


First Prong: Beginning of Construction


First Prong: Beginning of Construction

To establish the beginning of construction for PTC or ITC purposes, taxpayers must satisfy the beginning of construction with Physical Work of a Significant Nature or the 5% Safe Harbor (or both simultaneously).

Physical Work Test: Construction of a qualified facility or energy property begins when physical work of a significant nature begins onsite or offsite, and focuses on the nature of the work performed, not the amount or cost.

5% Safe Harbor: Construction of a qualified facility or energy property will be considered as having begun if a taxpayer pays or incurs five percent or more of the total cost of the facility, which includes all costs properly capitalized in the depreciable basis of the facility, but it does not include land or any property not an integral part of the facility. Integral partmeans all property used directly in the production of electricity from the renewable resource (a qualifying activity) and all property necessary for the completeness of this qualifying activity.

Investment Tax Credit and Production Tax Credit


Beginning of Construction: Physical Work Test


Facility and Energy Property Defined

A facility or energy property generally include all components of property that function interdependently.

oComponents 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. Factors indicating that multiple facilities (or energy properties) are operated as a single project include, but are not limited to:

Single Project FactorsThe facilities are owned by a single legal entity; The facilities share a common substation;

The facilities are constructed on contiguous pieces of land;

The facilities are described in one or more common environmental or other regulatory permits;

The facilities are described in a common power purchase agreement or agreements;

The facilities were constructed pursuant to a single master construction contract; and

The facilities have a common intertie; The construction of the facilities was financed pursuant to the same loan agreement.

Physical Work Test


A taxpayer may demonstrate physical work of a significant nature with both on-site and off-site work (performed either by the taxpayer or by another person under a binding written contract).

−In determining whether work is “significant,” the test focuses on the nature of the work performed, not the amount or cost. In summary, there is no fixed minimum amount of physical construction that must be performed or monetary threshold.

On-Site Examples

Wind Facilities

Excavation for the foundation;Setting of anchor bolts into the ground; or

Pouring of concrete pads for the foundation. Roads that are integral to the facility (roads for equipment to operate and maintain the qualified facility)

Custom machinery or equipment, or Structure that houses property integral to the activity of the facility.

Hydropower Facilities Excavation for or construction of a penstock, power house, or retaining wall structure.

Biomass and Trash Facilities Site improvements (as opposed to site clearing), such as filling or compacting soil, or installing stack piling.

Geothermal Facilities Physical activities undertaken at a project site after a valid discovery, such as the installation of piping, turbines, generators, flash tanks, or heat exchangers.

Solar Installation of racks or other structures to affix photovoltaic panels, collectors or solar cells to site. Fiber-Optic Solar Energy

Property Installation of collectors, concentrators, tracking systems, bundles of optical fibers, or fixtures within a structure.

Qualified Fuel Cell Property Installation of components of a fuel cell stack assembly, such as electrodes, gas diffusion layers, membranes, gasketing or plates.

Qualified Microturbine Property

Installation of a gas turbine engine, combustor, recuperator, regenerator, generator, alternator, or other plant components.

CHP Installation of a heat engine, generator, heat recovery components, or electrical interconnections. Qualified Small Wind

Property Installation of a foundation, tower, wiring or grounding systems.

Geothermal Heat Pump Property Installation of ground heat exchangers, heat pump units or air delivery systems (ductwork).

Physical Work Test


Off-Site Examples:

Other Industry Examples:

Switchgear;

Digester tanks from waste to energy facilities; and

Foundations support structures.

Examples from IRS Notices:

Wind Facilities

Physical work on a custom-designed transformer that steps up the voltage of electricity produced at the facility to the voltage needed for transmission is

physical work of a significant nature with respect to the facility because power conditioning equipment is an integral part of the activity performed by the

facility.

Regarding construction of step-up transformers and other major components. The IRS has said specifically: “If the facility’s wind turbines and tower units are to be assembled on-site from components manufactured off-site by a person

other than the taxpayer and delivered to the site, physical work of a significant nature begins when the manufacture of the components begins at the off-site location, but only if (i) the manufacturer’s work is done pursuant to a binding written contract and (ii) these components are not held in the manufacturer’s

inventory.

SolarManufacture of components, mounting equipment, support structures, such as

racks and rails, inverters, and transformers and other power conditioning equipment.

Physical Work Test


Binding Written Contract: Any work performed by a contractor is taken into account for physical work of a significant nature 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); and4. 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.

Physical Work Test


Inventory Exclusion: Physical work of a significant nature does not include work to produce property that is in existing inventory or is normally held in inventory by a vendor.

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 physical work of a significant nature.

Other Excluded Activities:

1. Roads primarily for access to the site, or roads used primarily for employee or visitor vehicles are not integral to the activity performed by the facility;

2. Fencing; and3. Buildings not integral to the activity of the

facility.

Preliminary Activities ExamplesPlanning and designing; Conducting environmental and engineering studies;

Securing financing; Performing activities to develop a geothermal deposit prior to valid discovery;

Exploring; Clearing a site;Researching; Conducting test drilling to determine soil condition;

Conducting geological mapping and modeling; Excavating to change the contour of the land; and

Obtaining permits and licenses; Removing existing turbines and towers, solar panels, or any components that will no longer be part of the facility.

Conducting geophysical, gravity, magnetic, seismic and resistivity surveys;

Physical Work Test


Beginning of Construction: Five Percent Safe Harbor


o Construction of a facility or energy property will be considered as having begun before January 1, 2020, if (1) a taxpayer pays or incurs (within the meaning of Treas. Reg. § 1.461-1(a)(1) and (2)) five percent or more of the total cost of the facility or energy property, except as provided in section 5.01(2), before January 1, 2020 [or other applicable begun construction date], and (2) thereafter, the taxpayer makes continuous efforts to advance towards completion of the facility or energy property (as determined under section 5.02).

o “Incurring” costs vs. making payment

‒Economic performance through delivery or transfer of tax ownership

o 3.5-month rule exception

‒Property or services reasonably expected to be provided within 3 ½ months of payment‒Method of accounting

o Look-through Rule for work performed under a binding written contract:

“for property that is manufactured, constructed, or produced for the taxpayer by another person under a binding written contract with the taxpayer, costs incurred with respect to the property by the other person before the property is provided to the taxpayer are deemed incurred by the taxpayer when the costs are incurred by the other person under the principles of section 461.”

o If there is cost overrun on a single energy property, then the taxpayer cannot scale back to satisfy the 5% Safe Harbor.

5% Safe Harbor


Look-through Rule - A taxpayer effectively steps into the shoes of the vendor for purposes of demonstrating when costs are considered incurred.

Vendor costs are considered incurred:

1.When the vendor incurs internal costs, or2.If the vendor contracts with a third party to provide

property or services-

a.When the subcontractor provides the property or services,

b.When the vendor pays the subcontractor for the property or services if the subcontractor provides the property or services within 3½ months of the date of payment, or

c.The earlier of when the subcontractor provides the property or service or the vendor pays the subcontractor for the property or services if the vendor’s contract with the taxpayer is a long-term manufacturing or construction contract for tax purposes.

A cost is generally incurred pursuant to a Binding Written Contract for tax purposes when:

1.The fact of the liability is fixed; 2.The amount of the liability is determinable with

reasonable accuracy; and 3.The economic performance test has been met

with respect to such cost, meaning that the equipment has been delivered or ownership of the equipment has passed to the purchaser.

Percentage of Completion (“PCM”) - an accrual method taxpayer may be required to use PCM if it enters into a long-term contract where the completion of production is more than 12 months from the contract date. Costs are considered incurred under PCM at the earlier of payment (assuming the payment is due under the terms of the contract), or when tax ownership of the property is transferred.

Look-through Rule and PCM


Second Prong: Continuity Requirement


Continuity Requirement

Once the construction has commenced before the end of the calendar year established for purposes of satisfying the beginning of construction, taxpayers must satisfy the continuity requirement according to the method used to satisfy the First Prong.

Continuous Construction (required for Physical Work): Relevant facts and circumstances are used to determine whether a taxpayer maintains a continuous program of construction that involves continuing physical work of a significant nature to satisfy the Continuity Requirement.

Continuous Efforts (required for 5% Safe Harbor): Relevant facts and circumstances are used to determine whether a taxpayer maintains continuous efforts to advance towards completion to satisfy the Continuity Requirement:

(a) paying or incurring additional amounts included in the total cost of the facility; (b) entering into binding written contracts for components or future work on construction of the facility; (c) obtaining necessary permits; and (d) performing physical work of a significant nature (as described in section 4.02).

Continuity Safe Harbor: Continuous Construction and Continuous Efforts are deemed satisfied if the energy property is placed in service within 4 calendar years of the year in which construction began.

Continuity Safe Harbor will be tolled and extended for a period of time, but no longer than four years, to account for delays that result from pursuing a modification in a Plan to mitigate national security concerns raised by the Department of Defense.


IRS Notices provide excusable disruptions during the program of construction and to continuous efforts, including, but not limited to:

Continuity Requirement

Excusable DisruptionsSevere weather conditions; Labor stoppages;

Natural disasters; Inability to obtain specialized equipment of limited availability;

Delays in obtaining permits or licenses (Specifically, from federal, state, local or Indian tribal governments, including, but not limited to delays in obtaining permits or licenses from the Federal Energy Regulatory Commission, the

Environmental Protection Agency, the Bureau of Land Management and the Federal Aviation Agency);

The presence of endangered species;

Delays at the written request of a federal, state, local or Indian tribal government regarding matters of public safety, security or similar concerns; Financing delays; and

Interconnection-related delays, such as those relating to the completion of construction on a new transmission line or necessary transmission upgrades to resolve grid congestion issues that may be associated with a project’s planned

interconnection;

Supply shortages.

Delays in the manufacture of custom components;


Additional Considerations


Transfers: Taxpayers may be able to transfer energy property between taxpayers and between locations under specific circumstances without losing qualifications for PTC or ITC. Joint ventures and bundling tangibles with intangibles

No special language for sale leasebacks as in 1603 Grant Program FAQs

−Q23. For applicants relying on the 5% safe harbor, what happens if ownership of the energy property changes between the time the property is acquired for use in a project and placed in service?

−A23. … However, if property is sold to an unrelated purchaser after December 31, 2011, the purchaser may not take the costs that the transferor incurred with respect to the property into account in determining whether the 5% safe harbor is met. This limitation does not apply in the case of a sale/leaseback arrangement. If an entity which met the 5% safe harbor with respect to a facility sells the facility to an unrelated entity and leases the facility back from that entity within 90 days of the placed in service date, the purchaser of the facility (assuming all other eligibility requirements are met) would be treated as satisfying the 5% safe harbor.

Combination of Methods: Although a taxpayer may satisfy both methods of establishing the beginning of construction, construction will be deemed to have begun on the date the taxpayer first satisfies one of the two methods. Abandonment of prior physical work

Investment Tax Credit and Production Tax CreditAdditional Considerations


Common begun construction strategies for solar


Strategy 1 – Purchase solar modules, inverters and/or mounting equipment to satisfy 5% Safe Harbor

Incur 5 - 7% of the anticipated cost of the solar pipeline by procuring equipment in 2019.

Make payment before year-end and take delivery or tax ownership at site or a storage facility.

o When taking delivery offsite tax ownership must be established and is evidenced by physically segregating the equipment, marking the equipment with identifiers, paying for storage, paying for insurance, and paying for future transportation to the site.

o Documentation of ownership is critical (e.g., pictures, IE reports, manufacturer attestations).

Property may be delivered into 2020 if payment is made in 2019 and delivery is reasonably expected within 3.5 months of the date of payment.

o Ensure that the taxpayer is on a method of accounting that allows use of the 3.5 Month Rule.

Take a conservative view of both the numerator (e.g., exclude potential transmission costs) and denominator (e.g., include potential transmission costs).

Solar Investment Tax Credit Strategy


Strategy 2 – Satisfy Physical Work by entering binding written contracts for customized transformers, mounting equipment, inverters, or batteries

Contract with a vendor for off-site physical work where the vendor begins the physical construction (i.e., fabrication) of equipment by year-end.

o Binding written contract must be established (e.g., non-refundable payment of 5% of contract price must be made; damages not limited to less than 5% of contract price).

o Property must not be inventory or normally held in inventory.

• Inventory does not mean the property cannot be mass-produced.

o Documentation of physical work is critical (e.g., pictures, IE reports, manufacturer attestations).

o Consider the conservative viewpoints of some marketplace investors on how much physical work is required for physical work of a “significant nature.”

Solar Investment Tax Credit Strategy


• Taxpayer is a utility scale solar project developer. Taxpayer anticipates constructing a pipeline of ten 200-MW solar facilities between 2019 and December 31, 2023.

• Each project is expected to cost $300 million to construct, resulting in an ITC of $90 million. Total ITCs of $900 million at risk. Taxpayer receives $120 million less in total ITCs at a 26% ITC value.

• To satisfy the 5% Safe Harbor on all of its projects by 12/31/19, Taxpayer would have to incur and outlay a total capital expenditure of at least $150 million (5% of $300 million = $15 million minimum per project; $15 million * 10 projects = $150 million). In order to conservatively incur 7% of the total project costs, Taxpayer would have to outlay $210 million (7% of $300 million = $21 million per project; $21 million * 10 projects = $210 million).

• To satisfy the Physical Work Test on all of its projects by 12/31/19, Taxpayer would have to outlay a total capital expenditure of approximately $1,000,000). Taxpayer would contract for the construction of main power step up transformers (custom designed and made to order) for each project ($2 million for each transformer * 10 projects = $20 million). The rules require only beginning construction under a binding written contract before year-end (potentially completed for as little as 5% of the contract price = $100,000 in total per project in 2019).

Example 1: Physical Work vs. 5% Safe Harbor


Common begun construction strategies for onshore wind projects


Has Taxpayer Begun Construction for purposes of the PTC?YES!

• 5% Safe-Harbor/continuous efforts to advance toward completion• Economic performance and the 3 ½ month rule• Cost overrun rule• Tax ownership of turbine components• Permissible transfers

Taxpayer is developing a 300 MW wind project with a total capex of $400 million. The wind project is slated to have 100 turbines. Taxpayer enters into a turbine supply agreement with Manufacturer to acquire 10 wind turbines at a cost of $25 million. The turbine supply agreement is executed on December 1, 2016, and requires all turbine components (e.g., tower, nacelle, and blades) to be completed with title transferring to the Taxpayer by April 15, 2017. Taxpayer is on the accrual method of accounting and makes payment of the $25 million purchase price on December 31, 2016.

Example 2: Purchase Turbines


Has Taxpayer Begun Construction for purposes of the PTC or ITC?YES!

• Physical work of a significant nature/continuous program of construction• How much physical work is enough?• Permissible transfers

Example 3: On-Site Physical Work

Taxpayer is developing a 300 MW wind project with a total capex of $400 million. The wind project is slated to have 100 turbines. Taxpayer has leased land rights and developed an initial site design. On December 1, 2016, Taxpayer enters into an agreement with Contractor to begin on-site physical construction through the excavation of ten wind turbine foundations. Before the end of 2016, Contractor begins work on a single wind turbine foundation (”Foundation #1) and by starting to build a road between Foundation #1 and another planned wind turbine foundation (”Foundation #2”) for purposes of operating and maintaining the wind turbines once placed in service. Contractor’s excavates and lays the mud mat for the single turbine foundation before January 1, 2017 at a cost of $50,000, and then completes the excavation and laying of the mud mats for the remaining nine turbine foundations pursuant to the agreement in early 2017. Contractor’s work on the road in 2016 included clearing the land, building embankments using cuts and fills, leveling the dirt and bumps, and placing gravel on the road bed at a cost of an additional $50,000.


Has Taxpayer Begun Construction for purposes of the PTC or ITC?YES!

• Physical work of a significant nature/continuous program of construction• How much physical work is enough?• Inventory rule• Permissible transfers

Example 4: Off-Site Physical Work

Taxpayer is developing a 300 MW wind project with a total capex of $400 million. The wind project is slated to have 100 turbines. On December 1, 2016, Taxpayer enters into a binding written contract with Manufacturer, to purchase a custom-designed step-up transformer. The total transformer purchase price is $2 million. The contract includes a penalty of 5% of the purchase price if cancelled/terminated. The initial down payment is $100,000 which is paid in 2016 upon execution of the purchase order. Manufacturer fabricates a radiator tank, a component of the transformer not commonly held in inventory. This component has a serial number, was not previously held in inventory and was manufactured after execution of the contract for the specific custom-designed transformer that will be incorporated into the wind project.


Common begun construction strategies for offshore wind projects


Has Taxpayer Begun Construction for purposes of PTC or ITC?YES!

• Physical work of a significant nature / continuous program of construction• How much physical work is enough?• Inventory rule• Permissible transfers• No deemed continuous safe-harbor applicable if project placed in service after

12/31/23, therefore must have overlapping continuous construction of ITC eligible components

Example 5: Off-Site Physical Work

Taxpayer is developing an 800 MW wind project with a total capex of $3 billion. The wind project is slated to have 50 turbines. Taxpayer has an offshore wind lease and land rights, and developed an initial site design. On November 1, 2019, Taxpayer enters into an agreement with a Supplier to begin off-site physical work through the fabrication of inter array cables. In November 2019, Supplier begins work on the inter array cables completing a certain amount before January 1, 2020 at a cost of $3 million. The remainder of the contract is completed and paid for by May 2020.


Has Taxpayer Begun Construction for purposes of PTC or ITC?YES!

• 5% Safe Harbor/ continuous efforts to advance toward completion• Economic performance and the 3 ½ month rule• Look-through Rule and PCM• Cost overrun rule• Tax ownership of turbine components• Permissible transfers• No deemed continuous safe-harbor applicable if project placed in service after 12/31/23,

therefore must have continuous efforts toward completion until project is placed in service

Example 6: 5% Safe Harbor Using Look Through RuleTaxpayer is developing an 800 MW offshore wind project with a total capex of $3 billion. The wind project is slated to have 50 turbines. On December 1, 2019, Taxpayer enters into a turbine supply agreement (“TSA”) with Manufacturer to acquire 50 wind turbines at a cost of $1.5 billion. The TSA requires Taxpayer to pay $150 million upfront to Manufacturer on December 15, 2019 and for Manufacturer to contract for and pay $150 million to its sub-suppliers on December 18, 2019 for the acquisition of certain subcomponents identified in the TSA. Taxpayer is on the accrual method of accounting and Manufacturer is on the percentage of completion method.

Utilizing the Look-through Rule the Taxpayer steps into the shoes of the Manufacturer with respect to its cost of performance under the TSA including the payment of $150 million in 2019 to sub-suppliers for the subcomponents identified in the TSA. Assume these subcomponents are required to be delivered to Manufacturer by December 2020.


Asset Description ITC Eligible Look-through Rule Eligible

Turbines Yes YesTurbine Installation Yes YesFoundations Yes YesInter-array Cables Yes YesOffshore Substation Yes YesExport Cables Likely LikelyOnshore Cable and Substation

Likely Likely

Interconnection No No

Offshore Wind Project ITC Components


Other PTC and ITC considerations for offshore wind

• Binding contracts and material modifications− Essential considerations with any strategy− Work performed by subcontractors

• 5% Safe Harbor Look-through Rule− Cost incurred under IRC section 461◦ Percentage of completion method (“PCM”) for

long-term manufacturing contracts− Costs are considered incurred at the earlier of

payment (assuming such payment is due under the terms of a contract), or when tax ownership of the property is transferred.◦ PCM + 3.5 month rule

• Continuous Efforts vs Continuous Construction− Continuous Efforts generally preferable to

Continuous Construction− Documentation: Gantt Chart, photographic

evidence, etc.− Foreseeability of excusable disruptions

• Multiple tax-equity investors• Joint ventures• Recapture• Use within the United States/tax-exempt use• Base erosion anti-abuse tax− ITC vs. PTC

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

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