Tax attorneys Kevin Pearson and Adam Schurle authored an article for North American Windpower titled “With PTC Deadlines Looming, Could Wind Catcher Cancellation Be Part Of A Trend?,” published September 13, 2018. (Also published September 20, 2018, in Solar Industry as “Solar Developers Must Be Mindful Of Looming ITC Deadlines.”) The article discusses how a delay in regulatory approval of American Electric Power Co’s. (AEP) approximately $4.5 billion, 2 GW wind farm – called Wind Catcher – combined with the phase-outs of federal tax credits led to the company canceling the project.
“Beginning of construction” rules for wind and solar projects in the Internal Revenue Code help determine the amount of federal tax credits available for those projects, and several IRS notices provide guidance to taxpayers on the IRS’ interpretation of those rules. The authors describe the rules and provide an example of application of the rules – if construction on a wind facility began in 2016, the project must be placed in service before the end of 2020 to meet certain “safe harbor” provisions of the rules and to be eligible to claim 100 percent of the Production Tax Credit (PTC).
The delay of the Wind Catcher project after the Public Utility Commission of Texas denied regulatory approval of the project meant AEP may not have been able to satisfy this four-year safe harbor, and “the timing and economics simply did not work for AEP,” according to Pearson and Schurle.
They conclude: “It remains to be seen whether other wind and solar developers will be required to scrap projects because of slow regulatory approval processes, but for wind developers especially – many of which are rushing to get projects placed in service by the end of 2020 – AEP’s decision surely hits close to home.”