Energy Evolution, Episode 7

On this episode of Weaver: Beyond the Numbers, Energy Evolution, our hosts discuss what to know about beginning of construction.

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Detailed Description of Weaver’s Energy Evolution, Episode 7

00:00:00
Leanne: Hi everyone. Welcome to the latest installment of our Energy Evolution podcast. Today, Dawn and I are going to be talking about something that we mentioned a lot in our podcast but haven’t delved quite so deeply into, and that is beginning of construction.

Dawn, I think you’re the specialist here, so I’m just going to throw it right over to you. What does everybody need to know about beginning of construction, particularly as we’re approaching the second half of 2024?

00:00:25
Dawn: It’s a great question. So, as we know, the Inflation Reduction Act set in motion credits for facilities that traditionally weren’t getting ITCs, which are the investment tax credits. So, what it did is basically say, hey, we’re going to give you some runway for things like, biogas production, those things that are at least 52% methane. So, you know, dairy farmers and all you fantastic pig swine pond, etc. who are using anaerobic digestion to produce renewable natural gas. What is happening is your facilities have to be beginning construction prior to the end of this year. So, on or before December 31st, 2024, those facilities that are producing things that are not electricity, renewable natural gas, need to begin construction on their facilities.

What starts on 1/1/25 is what’s known as energy credits, but it is technology agnostic and it has to have a zero CI score and it has to produce electricity. So, what that does is it knocks out quite a few of the credits that the Inflation Reduction Act added. So again, if you are producing that renewable natural gas of at least 52% methane, that’s not electricity. So, you really need to begin construction on your facility on or before the end of this year. What we’re hearing is, hey, you know, what the heck is that?

There’s two ways to begin construction. Literally, shovel in the ground, physical work of a continuous, ongoing nature, not disrupted. So, you know, boots on ground building, constructing, getting the facility up and running. And absent a natural disaster or act of God, you continue that build all the way through to completion.

Now there’s another way to do it. It’s called the 5% Safe Harbor. Now, this has been really popular, Leanne, as you know, you’ve been on tons of calls to discuss, what the heck is that?

00:02:25
Leanne: Right.

00:02:26
Dawn: The other way to make beginning of construction work is a spend. And so that spend is what’s known as the 5% Safe Harbor. You have to spend at least 5% of what the actual total of that facility is once it’s built on or before December 31st and continue making steps every day to progress to get that facility up and running.

We get a lot of questions. Well, geez, what can I spend 5% on? When you think about it, it has to be 5% of what the actual cost is that goes into the depreciable basis of the asset. So, we get a lot of questions. Oh, you know, I have some permits and I have all this stuff. Well, you have to spend what goes into the depreciable basis of the facility. So, it is limited to the depreciable basis of the facility.

Do you always want to target 5%? Absolutely not. We’ve seen a lot of cost overruns in the builds of these facilities. We always recommend exceeding that spend way above 5% just in case you have those cost overruns.

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