COVID-19 Impacts: How a Global Pandemic Amid the Sunsets of the PTC and ITC Made the U.S. Wind and Solar Industries More Resilient
A cataclysmic event is sometimes the necessary catalyst for companies within certain industries to re- examine, radically shift, and replace their standard practices with technologically-advanced alternatives. In the United States, the occurrence of the Coronavirus pandemic (“COVID-19”) during the sunsets of the Production Tax Credit (“PTC”) and the Investment Tax Credit (“ITC”) created a unique confluence of factors that produced a perfect storm tantamount to such a cataclysmic event for companies in the wind and solar industries, particularly developers. Over the years, the domestic utility-scale wind industry has come to rely heavily upon the PTC, while the domestic utility- scale solar industry has come to rely significantly upon the ITC. Developers within each of these renewable energy industries originally planned to qualify for such federal tax credits, relying upon the presumption that goods would be delivered and services would be rendered in accordance with historical norms for “ordinary course of business” operations.
This, however, did not occur. COVID-19 abruptly and unexpectedly emerged, with the virus’s widespread transmission sweeping the world during the end of fourth quarter 2019 and first quarter 2020. COVID-19’s consequences disrupted the global supply chain, creating workforce shortages, causing factories that manufactured equipment and components for wind farm and solar array construction to shut down, and presenting substantial hurdles for many developers to overcome in order to reach certain project construction and operations milestones – milestones that would have been readily reachable under normal circumstances. Irrespective of COVID-19 and its related ramifications, the step-down and phase-out periods of the PTC and ITC, respectively, nevertheless required these milestones to be met by certain fixed, federally- mandated deadlines. These rigid requirements posed an imminent threat to many commercial wind developers and solar developers alike, as failure to meet such milestones and deadlines meant tremendous adverse implications for their utility-scale wind or solar projects. Specifically, missing a deadline under the PTC or ITC meant that a project either would only qualify for a lesser federal tax credit amount than originally anticipated or would be forced to forego use of the federal tax credit altogether. For developers relying on one of these federal tax credits for purposes of financing their respective projects, neither of these alternatives were viable options.
As there was no guarantee during first quarter 2020 that either the United States Congress or the United States Department of the Treasury would extend the PTC’s and ITC’s deadlines, developers were forced to pivot quickly, think out-of-the-box, and innovate. Consequently, a heightened level of inter-industry collaboration occurred within both the U.S. wind and solar industries. Developers throughout these industries also began re-examining the force majeure provisions in their contracts, evaluating the benefits of expanding the definition of a force majeure event to
include health emergencies such as pandemics, and considering the merits of adopting uniform standards across contracts, including the mandatory requirement that identical force majeure definitions be used across the multiple contracts relating to the same project. This elevated contract drafting standards in both the U.S. wind and solar industries. Moreover, developers in these industries not only re-thought their equipment procurement strategies, but they turned to technological innovations to mitigate and refine their own internal operations and maintenance (“O&M”) practices. This resulted in ramped-up adoption of and increased reliance on high-tech devices, such as drones and Doppler Light Detection and Ranging systems (“LIDAR”), which helped to automate and streamline many companies’ internal O&M protocols. These changes permanently modified the character of O&M standards across the domestic utility-scale wind and solar industries, accelerating these industries’ advancement down the technology continuum and causing them to evolve more rapidly than they would have ordinarily. Ultimately, while the PTC’s and ITC’s deadlines did eventually get extended in late May 2020, prior to such time, in addition to smoothing the project permitting process and strengthening the finance industry’s pre-merger due diligence disclosure requirements for mergers and acquisitions (“M&A”) transactions, COVID-19’s impacts permanently transformed the U.S.’s wind and solar industries from a technological perspective, yielding positive operational outcomes and building resilience in both industries that will benefit them in the future.
Kimberly E. Diamond,
COVID-19 Impacts: How a Global Pandemic Amid the Sunsets of the PTC and ITC Made the U.S. Wind and Solar Industries More Resilient,
32 Fordham Envtl. L. Rev. 149
Available at: https://ir.lawnet.fordham.edu/elr/vol32/iss2/1
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