Wind energy seems to exist in a parallel universe where even simple words like “construction” no longer mean what you think they do. Why is that?
The old way
You know what construction projects look like, lots of construction workers in hardhats, bulldozers and backhoes, dump trucks and dirt and when combined with hard work and sweat you get something built. That’s the way it’s done, it’s worked that way pretty much forever. Let’s call it “classic” construction.
The new way
In the world of wind farms, though, there’s a new way to start a construction project, let’s call it “virtual” construction. No dirt, no sweat and certainly none of those trucks and backhoes, that’s way too much work, in fact, you could stand right in the middle of the construction and not see anything at all. Weird, huh? Welcome to the strange world of Production Tax Credits. (PTCs)
Thousands of years old and wind energy is still an infant?
Though wind developers try to hide it, without these PTC giveaways to support the “infant” wind industry, you would not see wind turbines going up anywhere. The wind industry relies on these handouts to put up turbines wherever it finds space and a community that will take them. PTCs were due, after 20 years, to finally expire December 31st, 2012, but were extended at the last minute for one more year, with one requirement to qualify for the credit, you need a working wind farm by the end of the year with turbines producing electricity. Is that too hard? Developers say it is, because when residents in a community look closely at wind turbines, they often oppose them and things slow down.
Just keep lowering the bar
No problem, the wizards in Washington who REALLY want to give money to wind energy, came up with something easier, instead of completing the project, you only had to start construction before the end of the year to qualify.
Well, that’s certainly less work, just dig some holes and push a little dirt around, but the wind industry thought it was still too hard. OK, how about this? You can start construction and qualify for tax credits without starting any construction at all, we’ll just redefine the word and forget the work. Easy enough now?
I.R.S. Notice 2013-29, titled, “Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit and Energy Investment Tax Credit,” explains how it works and the requirements are in sections 4 and 5, you choose either one to qualify.
Section 4 is called “Physical work.” It goes into great detail and basically says, to qualify you need a real construction project, someone gets dirty and sweaty, but why would anyone want to do that? Isn’t there an easier way? Why, yes, there is.
Section 5 is called “Safe Harbor.” Everyone’s a winner, it defines how to start and continue a construction project without building anything. Meet the requirements, get free money. Maybe now you can understand how this happened.
How do you build without building?
To show you have started construction, you must incur 5 percent of the total cost of the facility and demonstrate you are making continuous efforts. So, paying a supplier for 5 percent of the turbine parts means you’re under construction. Pretty simple.
How do you make continuous efforts?
Well there are 4 things you can do:
- Pay more money. Why would anyone want to do that?
- Physical work. Really? Isn’t that what we’re avoiding here?
- Enter into binding contracts. Sounds risky, let’s not.
- Obtain building permits. Hmm, that sounds pretty safe, OK, we’ll do that. We’re now making continuous effort, show me the money!
What if something disrupts your continuous efforts?
Hey, when the going gets tough, you know what to do, just point your finger at someone or something and you’ll still get the money.
What might slow you down?
The government lists quite a few things that might happen to hold up progress and they say none of these are your fault:
- severe weather conditions; doesn’t apply, you’re not building anything
- natural disasters; see above
- labor stoppages; no construction means no labor, so no problem
- inability to obtain specialized equipment of limited availability; see number 1
- supply shortages; for what?, you’re not building anything
- financing delays of less than six months; already have investors, no problem
- delays at the written request of a state or federal agency regarding matters of safety, security, or similar concerns; this could be a real problem for most people, but this is a wind farm, so it’s not your fault, you still get the money
- the presence of endangered species; for anyone else, this stops everything, for wind energy, you’re special, here, have some cash.
- licensing and permitting delays; The people who are trying to go slow and do this right just don’t understand how special wind energy is, so you’re still good.
- … but not limited to the above; Look, if you tell us you’re working hard on the project, we believe you, so you’re good to go.
You might think once you’ve passed the first step of showing you’ve started, there’s almost nothing that will prevent you from getting the tax credits, … and you might be right.
5 percent of what?
Of course, there is that one little item, you need to put up 5 percent of the cost. Is there a way to make that number smaller? Why not start telling reporters you talk to that you’ve scaled back your project from initial projections of 50 to 75 wind turbines and now it’s only going to be 10 to 20. Sure, a project that size no longer makes economic sense, but if that’s the new total number of turbines you’re telling everyone, especially if it’s 10 instead of 75, then 5 percent of that is a LOT LESS. Later, you can scale back up, but you can “start construction” and qualify for the tax credits at much lower cost. You could do that, not saying anyone would, but it’s certainly possible.
So work hard to get the wind ordinance in place and then qualify for tax credits. After that, it’s easy money, but hurry, offer ends December 31st, 2013.
It almost makes a person think the government is giving wind developers special treatment that no other businesses can get. Hmm, … would they do that?