The status of solar and wind tax credits and tariffs as we enter 2021

By Elliott J. Williams, Adam D. Schurle and Morten A. Lund, Stoel Rives

Trying to look ahead into 2021 is a study in uncertainty. Uncertainty has always been a fixture in the solar and wind industries, and the past few years have been spectacularly unpredictable, but uncertainty may be the defining feature for any prediction of what is to come in 2021.

Putting aside COVID-19’s lasting economic and societal effects, there’s still a lot unknown about renewable energy’s future in the United States. With an incoming Biden administration we can certainly expect increased stability, but only after a transition. And while there may be significant changes in policy, Biden has so far made only limited specific policy statements regarding wind and solar energy. We can reasonably expect, however, that a Biden administration will generally be more favorable to wind and solar energy than the Trump administration has been.

Ultimately, there is, and will likely continue to be, great uncertainty about Biden’s ability to implement policy changes with the support of Congress. As a result, we should consider in particular policy changes that President Biden might implement without Congressional involvement.

Tariffs Affecting the Solar Industry 

President Trump took steps to maintain the Section 201 global safeguard tariffs on PV modules, and tariff-rate quota on PV cells, including by revoking the exemption for bifacial modules, reducing the scheduled step down in the fourth year of the safeguard measure (now stepping down from 20% to 18% on February 7, 2021, instead of down to 15%), and authorizing the U.S. Trade Representative to request the ITC to investigate whether the safeguard measures should be extended beyond the initial four-year term. These actions could, however, be reversed by Biden without Congressional involvement, and any extension of the safeguard measures beyond the current four-year term (expires February 2022) will be the decision of the President at that time. We have no reason to expect that President Biden would extend these tariffs.

Solar developers and others continue to challenge the administration’s efforts to revoke the bifacial exemption to the Section 201 tariffs. As of the publication date of this article, bifacial solar modules are no longer exempt from the tariffs. Although legal challenges will likely plague the bifacial exemption, the Biden administration could switch directions and retain it as part of a broader policy to prioritize solar installations and development over domestic manufacturing, again without Congressional involvement.

Further, for the time being, the Section 301 duties (sometimes known as the “China tariffs”) remain in effect, imposing additional duties on capital equipment for solar projects sourced from mainland China. Again, Biden could revoke or modify these without Congress, but the general buzz in the trade community is that, while the strategy and subject goods may shift, some form of trade barriers with China are likely to stay.

In its sunset review of 2015 duties, the U.S. Department of Commerce determined to renew for another five years several layers of antidumping and countervailing duties on certain PV products originating from China and Taiwan. These tariffs are already baked into pricing and will therefore have relatively little additional impact at this time. These duties went into effect during the Obama administration, were left untouched during Trump’s tenure and are unlikely to be affected by further political changes.

In addition to the foregoing, President Trump’s May 1, 2020, Executive Order on Securing the U.S. Bulk Power System is a separate and significant source of uncertainty moving into 2021. The order prohibits transactions involving bulk-power system electric equipment with persons subject to the jurisdiction of a foreign adversary and creates a task force to develop recommendations for procurement and policymaking. Although the order does not expressly target solar modules from China or other components for solar generation projects, the submissions on Energy’s comment docket (including comments from SEIA) reflect a strong awareness of that possibility.

The Section 201 and Section 301 tariffs described above were implemented under authority of the Trade Act of 1974. Thus, it is unlikely that Congress will play any role in these policies. For Biden, the real obstacle to using these tools to incentivize renewable energy projects are the administrative processes and domestic manufacturing interests, which thus far have supported the use of trade barriers to cultivate domestic manufacturing of solar modules.

Faced with trade uncertainty, we have seen U.S. buyers and project developers continuing to source solar equipment from overseas and working to minimize trade risk in those vendor contracts. While the immediate risks to delayed construction or increased import duties are fairly well known, there remain significant challenges to foresee and craft contractual provisions that address the ripple effects of variable import duties or delays. Such variables can impact indirectly the dutiable transaction value of a shipment or may shift unexpectedly the circumstances relied on to qualify for renewable energy tax credits. This in turn presents an ongoing challenge to long-term project development planning.

A Review of Eligible Tax Credits

With regard to taxes, there have been fewer new changes, but there are upcoming changes already committed and known. Under current law, taxpayers are eligible for the solar investment tax credit under Section 48 of the Code (the Solar ITC) based on the year in which construction begins with respect to the applicable solar project. For projects on which construction began in 2019, taxpayers may claim a Solar ITC of 30% of the eligible basis of property included in the project. This phases down to 26% for projects on which construction begins in 2020, 22% for projects on which construction begins in 2021, and 10% thereafter. The Code also imposes a placed-in-service deadline such that the Solar ITC is equal to 10% for any project placed in service after December 31, 2023, regardless of when construction began.

As with solar projects, taxpayers are eligible for the wind per-kilowatt-hour production tax credit (the Wind PTC) based on the year in which construction of the applicable wind project begins. For projects on which construction began in 2016, taxpayers are eligible for the full Wind PTC. This is phased down by 20% for projects on which construction began in 2017, 40% for 2018, 60% for 2019, and 40% in 2020. The Wind PTC expires for projects that begin construction in 2021 or later. Taxpayers may also elect to claim the wind investment tax credit (the Wind ITC) in lieu of the Wind PTC, which is subject to similar phaseouts.

These annual credit step-downs have spurred significant project activity in the past years, including in 2020. We believe this is part of the reason why the renewable energy industry has been able to weather the COVID-19 crisis. We expect that this effect will continue for solar projects in 2021, which should provide some much-needed support in this time of uncertainty even without any additional changes from the Biden administration.

President-Elect Biden’s Outlook on Renewable Energy and Tax Rates

During the campaign, and in coordination with Vermont Senator Bernie Sanders, President-elect Joe Biden issued a set of Biden-Sanders Unity Task Force Recommendations, which included a recommendation to install more than 500 million new solar panels and 60,000 new wind turbines over the next five years. While details have not been ironed out, in furtherance of these goals Biden has suggested extending the Wind PTC, and the Solar ITC and Wind ITC.

It is also possible that the Biden administration will seek to enact a stand-alone energy storage tax credit, which would be a very welcome development for the renewable energy industry.

In addition to his energy-specific tax proposals, Biden has proposed an increase to the federal corporate income tax rate from the current flat rate of 21% to a flat rate of 28%. Such a change would make tax equity investments more attractive, which would benefit energy projects to the extent that tax credits remain available if or when the higher tax rate comes into effect.

Unlike certain tariff changes, which could be implemented without Congressional approval, any legislation extending energy-related tax credits or making other tax changes would need to get through the Senate, which could be a tall order.

Ultimately, we have every reason to expect that 2021 will be better than 2020 for wind and solar both. At the same time, the sheer amount of uncertainty swirling in the current moment makes it difficult to predict how it will be better, or who will benefit.

Elliott J. Williams, an IP attorney at Stoel Rives, is a member of the firm’s Energy Initiative and advises clients on trade issues. Adam D. Schurle, a tax partner at Stoel Rives, is a member of the firm’s Energy Initiative and advises clients on energy-related tax issues. Morten A. Lund, partner at Stoel Rives, serves as chair of the Energy Storage Initiative and is the former chair of the Solar Energy Initiative.