Senators Ask Treasury to Incorporate Offshore Wind Projects in Guidance on Energy Tax Credits

Harnessing our nation's offshore wind is a win-win-win. It means reliable, homegrown power, cleaner air, and real American jobs. We believe the extension of the wind investment tax credits and the new "commence construction" criteria included in the American Taxpayer Relief Act of 2012 (P.L. 112-240) can help catalyze offshore wind deployment in this country. We ask that as the Treasury Department (Department) adopts guidance standards for these tax credits, the agency takes into consideration similar "commence construction" criteria already in place and the significant differences between the planning, development, and construction of offshore wind farms compared to their land-based counterparts.

As you know, offshore wind is different than land-based wind, in that the wind blows faster and more uniformly over water than on land. A faster, steadier wind means more consistent electricity generated per turbine. As a result, offshore wind offers enormous potential for producing domestic clean energy in areas located close to large population centers and potentially utilizing existing transmission infrastructure.

However, offshore wind also presents its own unique challenges. The ideal offshore winds are often found in federal waters -- requiring federal permits and other logistical complications that can add years to the construction timeline. Land-based wind has an estimated 18 month permitting and construction timeframe, whereas, offshore wind can take five to seven years or longer. The long investment time, infancy of the industry, and higher initial costs of offshore wind, make offshore wind unique compared to land-based wind. Because of these challenges, investors have indicated that the investment tax credit is more advantageous than the production tax credit when it comes to offshore wind projects. Also, with the longer construction time for offshore wind, a traditional one-year extension is not useful -- since it takes much longer to build these projects and one has yet to begin.

In Section 407 of the American Taxpayer Relief Act of 2012, Congress extended the production tax credit under 26 U.S.C. 45(d) and the investment tax credit under 26 U.S.C. 48(a)(5)(C) for all wind projects and changed the eligibility requirements for these credits. Mirroring the language in the Section 1603 Program (P.L. 111-5), Congress changed the criteria by making all wind projects that commenced construction by December 31, 2013, eligible for the investment tax credit and production tax credit rather than projects placed into service. We believe the investment tax credit language could assist some of the earliest offshore wind projects nearing construction this year.

When determining guidance for the "commence construction" criteria, we urge the Department to heavily depend on the guidance already in place for the Section 1603 Program as intended by Congress. For example, we believe the Department should continue to treat land-based wind and offshore wind farms with multiple turbines as a single unit for eligibility purposes. We also believe there should continue to be a five percent safe harbor threshold for projects seeking to be eligible taking into account the much longer lead times required for delivery and installation of essential products for offshore projects (e.g., turbines) when defining qualifying costs for safe harbor provisions.

However, we hope that the Department will revise the Section 1603 Program guidance on qualifying costs since the planning, development, and construction of offshore wind farms are so different from land-based projects. Under the Section 1603 Program guidance, when determining qualifying costs, the Department does not factor in site assessment costs for land-based wind farms. This may make sense for land-based wind, but not for offshore wind. Site assessment and preparation for land-based projects are simple and straightforward. They are not capital-intensive. Moreover, that site work could lead to other uses of the property in the event that the wind farm is not developed at that site. Site assessment and preparation for offshore projects, however, require huge investments of time and money. These costs need to be factored into the Department's qualifying cost guidance. The offshore site work has no value other than for the specific offshore wind farm being developed at that site.

We appreciate you taking into consideration our concerns and comments on this important matter. If you or members of your staff have any questions of us in this regard, please feel free to contact Laura Haynes in Senator Carper's office, 202-224-2441 or laura_haynes@carper.senate.gov. We look forward to working with you as we continue to encourage the continued growth and development of the offshore wind industry.

With best personal regards, we are