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Build Back Better Act’s Renewables Provisions Could See New Energy

January 25, 2022 Patrick Corr

The Build Back Better Act (BBBA) appears, for the time being, to be stalled in the Senate. With Sen. Joe Manchin’s refusal to support the plan, Democrats simply lack the votes they need to pass it using the reconciliation strategy originally proposed. However, this stalemate doesn’t mean that certain renewables provisions of the bill couldn’t gain enough support to pass on their own. In his Jan. 19 press conference, President Biden said he was “confident we can get big pieces, big chunks” of the legislation over the finish line. Among those “big chunks,” Biden said he sees support for climate and energy provisions.

“I’ve been talking to a number of my colleagues on the Hill,” he said. “I think it’s clear that we would be able to get support for the $500 billion-plus for energy and the environment.”

So, what elements of the BBBA’s renewables provisions could see the biggest push from legislators? In this post and the next, I’ll discuss six of the energy issues that I think stand the best chance of making it through the legislative process and onto the president’s desk for a bill signing. As a caveat, this discussion is based on how the legislation stands now, and provisions could shift during future negotiations.

Investment and production tax credits

Language in the most recent version of the Build Back Better Act lays out a somewhat complicated program for extending the separate investment tax credit (ITC) and production tax credit (PTC) option for solar. In general, the following would apply to projects over 1 MW net output for construction through the end of 2026:

  • The current base 26% ITC will be reduced to 6%. This credit will be multiplied by five – to 30% – if projects meet prevailing wage and apprenticeship targets (more on these below).
  • The PTC will be 0.3 cents, which also will be multiplied by five, for a total of 1.5 cents if prevailing wage and apprenticeship requirements are met. This credit would be adjusted for inflation, or 2.5 cents at present.

For projects starting after Jan. 1, 2027, a new technology-neutral system will apply:

  • Any zero-emissions electricity producer will be able to choose between either the ITC or PTC rates, above. Those rates remain in effect until emissions from electricity generation fall by 75% compared to 2021 levels or through the end of 2033, whichever is later.

Prevailing wage and apprenticeship provisions

Projects meet new prevailing wage and apprenticeship provisions to qualify for the highest ITC and PTC rates. There would need to be guidance from the Treasury Department on specifics, but the following broad provisions would apply under the BBBA:

  • Developers would have to pay prevailing wages during construction and for any work to alter or repair a project for five years after it’s placed into service.
  • For developers opting for the PTC, those wages would be required for 10 years after a project goes into service.
  • Construction contractors also would need to employ participants in federally registered apprenticeship programs for renewables projects to qualify for bonus ITC and PTC rates. This requirement incorporates specific provisions for determining the required level of apprenticeship participation.

Direct pay

The BBBA’s direct pay provisions could be a big boon to those constrained by tax equity finance challenges in order to get their projects built. Instead of needing to rely on tax equity finance, under the legislation, taxpayers would be able to treat tax credits as an overpayment of taxes. This means these companies – which can include those with little or no tax liabilities otherwise – could receive payment from the Internal Revenue Service the same as they would for any standard tax refund. After 2023, renewables projects would need to meet new domestic content requirements.

I’ll be covering what those domestic content requirements would be, along with added benefits for energy storage and transmission development, in my next post.