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Q&A

The Most Pressing Question for Energy Developers After the House’s IRA Cuts

A conversation with Heather Cooper, a tax attorney at McDermott Will & Emery, about the construction rules in the tax bill.

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This week I had the privilege of speaking with Heather Cooper, a tax attorney at McDermott Will & Emery who is consulting with renewables developers on how to handle the likelihood of an Inflation Reduction Act repeal in Congress. As you are probably well aware, the legislation that passed the House earlier this week would all but demolish the IRA’s electricity investment and production tax credits that have supercharged solar and wind development in the U.S., including a sharp cut-off for qualifying that requires beginning construction by a date shortly after the bill’s enactment.

I wanted to talk to Heather about whether there was any way for developers to creatively move forward and qualify for the construction aspect of the credits’ design. Here’s an abridged version of our conversation, which happened shortly after the legislation passed the House Thursday morning.

How would this repeal affect projects that are already in the pipeline?

Projects in the pipeline are likely going to be safe harbored or grandfathered from these repeals, assuming they’ve gone far enough into their development to meet certain tax rules.

For projects that are less far along in the pipeline and haven’t had any outlays or expenditures yet, those developers right now are scrambling and I’ve gotten probably about 100 emails from my clients today asking me questions about what they can do to establish construction has begun on their project.

If they don’t satisfy those construction rules under the tax bill, they will be completely ineligible for the energy generating credits — the investment tax credit and production tax credit. A pretty significant impact.

What are the questions your clients are asking you?

I’m being asked how these credits are being repealed, if there’s any grandfathering, and how it’s impacting transferability. Also, they’re asking if these rules are tied to construction or placing in service or tax years generally. But also, it seems like people are asking what folks need to do to technically begin construction.

How much will this repeal affect fights between developers and opposition? I spoke to an attorney who told me this repeal could empower NIMBYs, for example.

I don’t know if it empowers them as much as NIMBYs will have less to worry about. If these projects are no longer economical, if these are no longer efficient to build, then the projects just won’t get built. NIMBYs and opponents will be happy.

I don’t think anything about the particular structure of the repeal, though, is empowering opponents. It is what it is.

Like, you can begin construction by entering into procurement contracts for equipment to build your facility so if you’re building a project you can enter into a contract today to get modules, warehouse those modules, and then use those modules to cause one or more projects as having begun construction based on when they were purchased.

If a developer today is able to enter into those contracts, that’ll be outside the scope of anything an opponent would have anything to do with.

Are we expecting people to make decisions before the Senate has acted on this bill or are people in a holding pattern?

When the election happened in November I had increased interest in clients who were concerned about a worst-case scenario like this, that credits would be repealed at or around the time of enactment. We had clients betting not that this would happen but [there was still] a 1% chance or a 5% chance. And folks asked then, how do we re-up thinking about how to begin construction on projects as a precautionary measure.

A lot of my clients were thinking about the worst case scenario beforehand. This is probably just escalating their thinking.

I don’t think people have a lot of time to think about what to do, though, given the 60-day cut off after enactment.

What is the silver lining here? Is there any? If I were to talk to a developer right now, is there an on the bright side here?

The short answer is no. Maybe it makes power projects a lot more expensive and American energy a lot more expensive and therefore those building power projects can make more money from their existing projects? That’s whether they’re renewable or otherwise. Other than higher power costs – for consumers, regular old taxpayers – there’s not really a bright side.

So, what you’re saying is, you don’t have any good news?

The good news is the Senate is still out there and needs to review this. There are a few senators who’ve expressed strong support of these credits – I’m not super optimistic, but four senators tend to have a bit more sway than congresspeople do.

Yellow

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Q&A

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