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IRS Clarification Of US PTC Could Unlock Industry Stalemate & 3 GW of Wind Projects

The US Internal Revenue Service (IRS) has finally clarified rules regarding how wind projects qualify for federal tax incentives, leading analysts to believe that the industry can finally extract itself from the uncertain log-jam it has been in since the end of 2013.

Developers were forced to initiate construction by the end of last year to receive the $0.023/kWh production tax credit (PTC), either by spending 5% of total project costs or actually starting physical work on the project. There was uncertainty, however, as to just how much work there needed to be completed, which subsequently left investors unwilling to commit to projects that — without further clarification — could have ended up on the wrong side of the PTC.

The new clarification from the IRS (PDF) states the following;

Assuming the work performed is of a significant nature, there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy the Physical Work Test.

The original guidance had led some owners and investors to suspect that 20% of a project’s turbines had to be laid by the end of 2013 to qualify for the PTC. The offending section provides an example whereby 10 out of 50 turbines have had their foundations laid, however the IRS note that the example was “not intended to indicate that there is a 20% threshold or minimum amount of work required to satisfy the Physical Work Test.”

Make Consulting has released a ‘Flash Note’ regarding the IRS clarification, looking into the future post-clarification, suggesting that “the market interruption caused by investor uncertainty heightens expectations for 2015 and creates new challenges for the US wind market.”

It also notes that the clarification may release an estimated 3 GW worth of log-jammed orders in the pipeline. This will be a big boost for the industry as a whole, as well as those manufacturers contracted to provide equipment left waiting for investment to be secured upon IRS clarification. However, analysts warn that some projects could be pushed through to 2015, putting them at risk of IRS scrutiny if they are not brought online by the end of 2015.

 
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