Stimulus Package Includes Multiple Incentives for Alternative Energy

Stimulus Package Includes Multiple Incentives for Alternative Energy

February 17, 2009 05:42
by J. Wylie Donald

By Frances Ruml Beckley

The American Recovery and Reinvestment Tax Act of 2009 was signed into law by President Obama today.  It includes several significant extensions to existing incentives for clean energy and also some new programs.  The legislation is estimated to be worth almost $20 billion to renewable energy industries over the next decade.  Even the most jaded amongst us has to agree that that's enough for quite a few solar panels and windmills and biomass engines.  When compared to prior law, more of the incentives are provided in the form of immediate credits (investment credits versus production credits) or, in some cases, even grants in recognition of the difficulties of obtaining financing during the current economic downturn.

Production Credits

Credits for production of electricity from alternative energy sources under Section 45 of the Internal Revenue Code have been extended:  from 2009 to 2012 for wind projects, from 2011 to 2013 for marine and hydrokinetic renewable energy facilities, and from 2010 to 2013 for most other qualifying facilities (open- and closed-loop biomass, geothermal, solar, landfill gas, municipal solid waste, and qualified hydropower).

Investment Credits

During the same years that the extended production credit will be available, a new provision will permit a taxpayer to elect to take the investment credit under Section 48 in lieu of the production credit under Section 45 for almost any project that would qualify for the production credit.  The Section 48 investment credit for these projects will be available for thirty percent of the cost of qualifying equipment in the year that the projects are placed in service.  As under prior law, the taxpayer cannot take both credits but must choose between the Section 45 production credit and the Section 48 investment credit for each project.  An election to take the Section 48 investment credit will be irrevocable.

The Section 48 investment tax credit also is expanded by permitting taxpayers to claim the full amount of the credit for eligible property that has been funded by subsidized energy financing or industrial development bonds.  Under prior law, the portion of the equipment purchased with those types of subsidized financing was not eligible for the credit.

A brand new credit is created for investments in qualifying advanced energy projects, which will be codified as Section 48C.  Qualifying advanced energy projects are essentially facilities to manufacture alternative energy equipment such as wind turbines, solar panels, energy storage systems for electric cars, electric grids to support the storage or transmission of renewable energy, equipment that captures and sequesters carbon dioxide, and any other designated technology to reduce greenhouse gases.  The credit would be thirty percent of the investment in eligible property, which generally is depreciable tangible personal property necessary for production of the alternative energy equipment.  The credit generally will be available in the year the project is placed in service, with some exceptions for qualified progress expenditures.  Taxpayers would have to apply for certification of a project and the project’s potential to create jobs as well as its potential to reduce pollution will be considered.  Credits under the program will be limited to $2.3 billion.  Projects receiving credits under Sections 48 or under the special investment credit provisions for qualifying advance coal projects or qualifying gasification projects are not eligible for this credit.

Grants

In addition to these expansions of the credit programs, the legislation provides that most taxpayers that would qualify for the Section 48 investment credit (including those electing that credit in lieu of the Section 45 production credit) can choose instead to apply for a grant in the amount of the Section 48 credit they would otherwise have received.  To be eligible, projects generally must be placed in service during 2009 or 2010 or must be started during 2009 or 2010 and completed before the expiration of the investment credit.  The grants are subject to the same dollar limitations that would apply to the investments credits.  Grants are not available to non-taxpayers such as local governments or non-profit organizations.  A taxpayer cannot take either the production or the investment tax credit for a project for which it has received this grant.  The grants are not taxable income to the taxpayer.

The legislation also increases the amount of new clean renewable energy bonds by $1.6 billion and the amount of qualified energy conservation bonds by $2.4 million.

There is a lot of money flying around here.  Hopefully it will keep the fledgling renewable energy industry in the air and help get the economy off the ground.

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The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

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