Top Tips for Solar Investment Tax Credit in 2020
1. Don’t miss out on 26% Investment Tax Credit!
The Solar Investment Tax Credit (ITC) will step down an additional 4% in 2021. Which of your projects are ready to procure or start construction for 26% ITC in 2020? Discuss with your tax counsel what qualification strategy (safe harbor equipment purchase, on-site start of construction, or off-site factory manufacturing start of construction) will work, and consider the optimal blend of cost and flexibility best for your project development activities.
2. Set yourself up for success in your supply agreements
While negotiating supply agreements, talk to your suppliers about including contractual requirements and deadlines for work completion certificates, provision of documentation, manufacturing/construction schedules and locations, and granting factory, site or warehouse access to a buyer representative to observe products procured or under construction or manufacturing. Securing this commitment early can help firm up manufacturing and visit schedules ahead of the year-end rush.
3. Ensure traceability to physical components in your factory documentation
Many developers opt to start manufacturing work on main transformers or similar equipment as a means of safe harboring capacity. However, definitively connecting specific subcomponents in the factory to specific projects can be challenging in practice. Ask your suppliers to pre-specify serial numbers for your equipment, and require the inclusion of serial numbers and reference to the procurement agreement or purchase order on all manufacturing documentation, including completion certificates. Ensure that serial numbers are discretely traceable to permanent labels on equipment (e.g. punch labels). Clearly linked documentation, along with firsthand observations, will create an unambiguous picture of procurement and manufacturing work completed specifically for your project.
4. Get ahead on scheduling on-site construction activities
Avoid the consequences of onsite construction delays on ITC qualification activities. In 2020, in addition to typical concerns such as weather delays, impacts from COVID-19 and supply chain constraints are likely to further increase schedule risk. To ensure your work for 2020 ITC qualification is completed and documented by December 31, 2020, get a head start on executing your construction agreements, plan buffer into construction schedules, consider diversifying on-site activities to hedge risk of key equipment delays, and leave room in your schedule for an independent review prior to year-end.
5. Independent, third-party documentation provides comfort for project stakeholders
While procurement contracts and contractor documentation are important, the strongest possible tax credit qualification package will incorporate third-party verification and documentation of construction or manufacturing activities, including transparent and conclusive tracing of documentation to firsthand observations of equipment and construction work. In addition to providing a real-time check on these activities so that any discrepancies can be corrected timely, the resulting independent reporting and certification provides comfort and compelling evidence to project investors, potential buyers, and the IRS as to the legitimacy of the qualification activities.
DNV GL has performed inspections and independent certification in support of tax credit qualification activities for more than 400 solar and wind energy projects in the last four years alone. With more than 100+ offices globally, we engage in onsite inspection activities across construction and manufacturing sites throughout North America, South America, Europe, and Asia. DNV GL provides comprehensive and seamless coverage for safe harbor inspection requirements, and creative solutions even for locations impacted by COVID-19 travel restrictions—all backed by DNV GL’s reputation for technical rigor and independence. To learn how we can add value for your projects, email Smitty Ovitt, Principal Consultant – Solar Business Development (Smitty.Ovitt@dnvgl.com).