On February 13, 2009, the House and Senate passed the “American Recovery and Reinvestment Act” (“ARRA”), a $787.2 billion spending and tax cut stimulus package. President Obama is expected to sign the ARRA into law on February 17th.
The following is a summary of the major renewable energy, climate change and other energy provisions in the ARRA, including a description of:
- changes to the renewable energy tax credits;
- the Department of Treasury renewable energy grant program; and
- energy and transmission appropriations.
- Production Tax Credit Extension. Internal Revenue Code (“IRC”) § 45 allows a production tax credit (“PTC”) for production of electricity at a “qualified facility” using “qualified energy resources.” A qualified facility must be placed in service before specified dates. The ARRA extended those placed in service dates by 2 years with respect to marine and hydrokinetic energy and 3 years with respect to all other qualified energy resources. The chart below provides, with respect to each qualified energy resource, the date before which a facility must be placed in service to be treated as a qualified facility under both current law and upon enactment of the ARRA.
Please click here to view table.
Note that the refined coal production tax credit, also available under IRC § 45, was not extended by the ARRA and is currently set to expire on January 1, 2010. (Also note that the ARRA did not extend (i) the biofuels credits -- alcohol fuels, biodiesel fuels and alternative fuels; or (ii) the investment tax credits (“ITC”) under IRC § 48.)
- Election to Claim ITC in Lieu of PTC. PTCs are generally available during the 10-year period beginning on the date that a qualified facility is placed in service. The amount of the available PTC is the product of the amount of electricity produced and an inflation-adjusted amount published annually by the IRS.
Under IRC § 48, an ITC is available with respect to “energy property.” Under current law, energy property includes solar, combined heat and power system, qualified fuel cell, qualified microturbine, qualified small wind energy, geothermal, and ground/ground water thermal energy property. The ITC is available during construction of energy property or in the year that the energy property is placed in service. The amount of the ITC is the product of the taxpayer’s basis in the energy property and either 30%, for solar, qualified fuel cell and qualified small wind energy property, or 10%, for all other energy property.
The ARRA expands the ITC to allow taxpayers to make an election to claim a 30% ITC, in lieu of a PTC, for facilities that are qualified facilities under IRC § 45 (see chart above). This election is available for qualified wind facilities placed in service during the years 2009 to 2012, and for all other qualified facilities placed in service during the years 2009 to 2013.
- Repeal of ITC Subsidized Energy Financing Reduction. The amount of the available ITC is the product of the taxpayer’s basis of energy property and either 30% or 10%, as described above. Under current law, for purposes of that calculation, the basis of energy property is reduced if the property is financed, in whole or in part, by subsidized energy financing or private activity bonds, the interest on which is tax-exempt. Subsidized energy financing includes financing under a federal, state, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy. The ARRA eliminates this basis reduction.
- Repeal of ITC Small Wind Energy Property Limitation. Under current law, the amount of the ITC available for small wind energy property was capped at $4,000. The ARRA eliminates that cap.
- Increased Funding for Clean Renewable Energy Bonds. Under current law, the amount of “New Clean Renewable Energy Bonds” available under IRC § 54C is limited to $800 million. The ARRA increases the bond limitation by $1.6 billion.
- Increased Alternative Fuel Vehicle Refueling Property Credit. Under current law, a tax credit is allowed equal to 30% of the cost of any “qualified alternative fuel vehicle refueling property” placed in service by a taxpayer; however, the amount of the tax credit is currently capped at $30,000. The ARRA increases the tax credit available for property that does not relate to hydrogen from 30% (with a $30,000 cap) to 50% (with a $50,000 cap). The ARRA increases the cap on property that relates to hydrogen to $200,000.
- Carbon Capture & Sequestration. Existing law allows a $10 per ton tax credit for the first 75 million metric tons of CO2 captured and transported from an industrial source for use in enhanced oil recovery; the amount of that credit is increased to $20 per ton for CO2 captured and transported from an industrial source for permanent storage in a geologic formation for facilities capturing at least 500,000 metric tons annually. The ARRA amends this law to require that any taxpayer that claims the $10 per ton tax credit for CO2 use in enhanced oil recovery must ensure that the CO2 is permanently stored in a geologic formation. The ARRA also clarifies that the term “permanent geological storage” includes oil and gas reservoirs as well as unminable coal seams and deep saline formations.
Department of Treasury Grant Program
- Treasury Grant In Lieu of PTC or ITC. In lieu of claiming PTCs or ITCs with respect to qualified facilities or energy property, the ARRA provides that a grant may be obtained from the Department of Treasury. To qualify for the Treasury grant, either (i) the property must be placed in service during 2009 or 2010 or (ii) construction must begin in 2009 or 2010 and must be completed before the relevant placed in service date requirement. The amount of the grant is the product of the taxpayer’s basis in the facility and either 30% or 10%, depending on the type of facility: click here to see table.
With respect to qualified fuel cell, qualified microturbine and combined heat and power system property, the amount of any Treasury grant may not exceed any credit limitations provided in IRC § 48. Payments of such grants are to be made within the later of 60 days following the date of application or the date that the property is placed in service.
Energy and Transmission Appropriations
- Electricity Delivery and Energy Reliability. The ARRA appropriates $4.5 billion to the Department of Energy for expenses necessary to modernize the electric grid, including the implementation of existing programs that bring together the DOE, FERC, electric utilities and other stakeholders to investigate and test smart grid technologies. The DOE may also use these funds as federal matching grants for smart grid investment costs, paying up to 20% of qualifying grid investments made by private entities.
- Fossil Energy Research and Development. The ARRA appropriates $3.4 billion to the Department of Energy for fossil energy research and development, including funding for the Clean Coal Power Initiative and for carbon projects such as beneficial carbon reuse and geologic sequestration training grants.
- Uranium Enrichment Decontamination and Decommissioning Fund. The ARRA appropriates $390 million to the Department of Energy for the existing Uranium Enrichment Decontamination and Decommissioning Fund. This fund, managed by the Office of Environmental Management, supports the clean-up of areas contaminated by nuclear waste.
- Innovative Technology Loan Guarantee Program. The ARRA appropriates $6 billion to pay the costs of guarantees made under § 1705 of the Energy Policy Act of 2005. Eligible projects under § 1705 must commence construction no later than September 30, 2011, and must be: (i) a renewable energy system, which includes incremental hydropower; (ii) an electric power transmission system, including upgrading and reconductoring projects; or (iii) a leading edge biofuel project that uses technologies at the pilot or demonstration scale that the Secretary of Energy determines are likely to become commercial technologies. Projects not eligible for loan guarantees under § 1705 include fossil energy coal and carbon sequestration (both of which are eligible projects under § 1702 of the Energy Policy Act of 2005).
- Increased Borrowing Authority. The ARRA appropriates $3.25 billion to the Bonneville Power Administration (“BPA”) as additional borrowing authority for the purpose of assisting in the financing of construction, acquisition and replacement of BPA’s transmission system. The ARRA also appropriates $3.25 billion to the Western Area Power Administration (“WAPA”) as additional borrowing authority for the purpose of assisting in constructing, financing, facilitating, planning, operating, maintaining or studying construction of new or upgraded electric power transmission lines and related facilities within WAPA’s service area.
- Carbon Capture and Sequestration. The ARRA appropriates $3.4 billion for research and development and demonstration of carbon capture (i.e., carbon sequestration) projects. This program will be administered by the Energy Department’s Office of Energy Efficiency and Renewable Energy.