Co-written by: Jarrett Duncan
There is no doubt the current, nearly unprecedented, world-wide economic conditions are leading to extraordinary structural changes in the role of governments in the market place. Inextricably linked to this is the critical need for the adoption of a sound energy policy in this country, and the elimination of dependence on foreign oil. The American Recovery and Reinvestment Act of 2009 (“ARRA”) includes expanded economic incentives for the development of alternative, green, energy sources to move our country away from dependence on imported oil. The ARRA provides considerable support for renewable energy markets to develop and produce independent, sustainable, clean and efficient energy. The Act provides tax incentives for businesses and individuals producing, developing or using renewable energy and energy efficiency technologies. This article provides a summary of the tax incentives for renewable energy related initiatives.
The federal tax code allows developers of qualifying, renewable energy facilities to take a renewable energy production tax credit based on the amount of electricity sold by the taxpayer to an unrelated person during each taxable year over a ten-year period from the date the facility was originally placed in service. The Act extends for three years the eligible start-up date for wind facilities (through 2012) and for closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities (through 2013). This provision allows additional time for developers of qualifying energy facilities to raise financing for projects, complete construction of projects and commence energy production without losing the opportunity to claim the production tax credit.
A 30% investment tax credit, in lieu of the production tax credit, has been extended by the Act from solar facilities to wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities placed in service through the year 2016. Developers of these facilities will elect between the investment tax credit or the production tax credit.
As added incentive for the development of “green energy”, the Act provides a 30% investment credit, subject to applicable limits to individual homeowners for energy improvements, including solar electric, solar thermal, residential wind, and geothermal heat pump property, through 2016. This provision provides financial assistance to homeowners making energy improvements, which ultimately supports businesses providing residential energy improvement services.
As an additional stimulus for the expansion of renewable energy sources, the benefit of the business energy tax credit has been expanded for wind energy projects with capacity of less than 100 kilowatts.
The Act increases the amount of clean renewable energy bonds available to qualifying renewable energy facilities by $1.6 billion to finance closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities. This increase will be divided among governmental bodies, power producers and qualifying electric cooperatives, one-third each. The Act also provides an additional $2.4 billion of qualified energy conservation bonds to finance governmental programs and initiatives designed to reduce greenhouse gas emissions. These bonds are available to both private companies and individuals.
A 20% research and development credit in taxable years 2009 and 2010 is provided for expenditures incurred in the fields of fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration. The Act also establishes an advanced energy investment credit allowing facilities engaged in developing technologies for the production of renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration to claim a 30% investment tax credit of the qualifying property in the year it was placed in service. These credits are only available for projects certified by the Secretary of Treasury through a competitive bidding process. It is important to note that a facility cannot be eligible for both research and development credit and the advanced energy investment credit.
Owners of refueling facilities installing alternative fueling pumps for E85 fuel (motor fuels with 85% ethanol and 15% gasoline), hydrogen and natural gas will also benefit from the ARRA. Their tax credit is increased to 50% of the investment cost for E85 fuel and natural gas, capped at $50,000, and 30% of the investment cost for hydrogen fueling pumps, capped at $200,000. This credit provides incentives for the installation of alternative fueling dispensers at existing or new fueling stations.
The United States has for the first time, in this new legislation, set a new direction on energy policy and climate change. If the markets are stimulated by these incentives, there will be opportunities to expand the renewable energy infrastructure, producing cleaner, more diversified and more efficient energy. If you are involved in or considering becoming involved in the renewable energy or energy efficiency markets, this new law could, when combined with broader analysis of governmental regulations, provide significant opportunities for you.