On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”). Consistent with President Obama’s stated focus on energy independence and security, the Stimulus Bill contains numerous provisions designed to encourage and subsidize investment in and development of alternative and renewable energy projects and technologies, as well as energy efficiency. While in many cases the Stimulus Bill simply increased the size of existing programs, in other cases it created new programs or provided new flexibility for existing programs. The following is a very brief overview of the major renewable energy and energy efficiency incentives in the Stimulus Bill. Locke Lord’s Climate Change Practice Team can provide further details on these incentives and assist in the development and implementation of business strategies to capitalize on these new incentives. We encourage you to contact any of the authors for questions regarding these programs.
Extension of Renewable Electricity Production Tax Credit
The Stimulus Bill extends for three years (generally, through 2013; through 2012 for wind facilities) the period during which qualified facilities producing electricity from wind, closed-loop biomass, openloop biomass, geothermal energy, municipal solid waste, and qualified hydropower may be placed in service for purposes of the Section 45 renewable electricity production tax credit (“PTC”). The Stimulus Bill also extends for two years (through 2013) the placed-in-service period for marine and hydrokinetic renewable energy resources to qualify for the PTC.
Election of Business Energy Credit Instead of the PTC
The Stimulus Bill allows the taxpayer to make an irrevocable election for property that would normally qualify for the PTC but not the Section 48 business energy tax credit (the “Business Energy Credit”), to claim the Business Energy Credit in lieu of the PTC. If a taxpayer elects the Business Energy Credit for qualifying property, the taxpayer receives a 30 percent credit based on the amount of qualifying property placed in service in a given year, as opposed to the PTC’s 30 percent credit over a 10 year period on the amount of electricity sold to third parties.
New Qualified Advanced Energy Manufacturing Project Credit
The Stimulus Bill establishes a new 30 percent tax credit for investment in qualified property used in a qualified advanced energy manufacturing project that re-equips, expands, or establishes a manufacturing facility for the production of certain types of equipment designed to produce renewable energy or be used for carbon sequestration, renewable fuels production, energy conservation or other advanced energy applications designed to reduce greenhouse gas emissions.
Cap Lifted on Business Energy Credit for Small Wind Property
The Stimulus Bill eliminates the $4,000 annual cap on the Business Energy Credit that previously applied to qualified small wind energy property (<100 kilowatt nameplate capacity), thus allowing an uncapped 30 percent credit to be claimed for such property.
Business Energy Credit Basis Reduction Rule for Subsidized Energy
Financing Eliminated Prior to the Stimulus Bill, the tax basis of property claimed for the Business Energy Credit was reduced if, and to the extent that, the property was financed by subsidized energy financing or with proceeds from private activity bonds. The Stimulus Bill eliminated this basis reduction and allows taxpayers to claim the Business Energy Credit based on the original tax basis of such property, disregarding any subsidized energy financing or private activity bonds.
PTC and Business Energy Credit Coordinated with Renewable Energy Grants
The Stimulus Bill authorizes the Secretary of the Energy to provide grants to taxpayers who place in service energy property during 2009 and 2010 that would otherwise qualify for the PTC or the Business Energy Credit. If a taxpayer receives a grant from the Secretary of the Energy for specified energy property, that taxpayer may not claim the PTC or the Business Energy Credit for the specified energy property.
Expansion of New Clean Renewable Energy Bonds
The Stimulus Bill expands from $800 million to $2.4 billion the national cap on the value of new clean renewable energy bonds that qualified issuers may issue to finance qualified energy facilities (facilities that qualify for the PTC and are owned by a public power provider, governmental body or cooperative electric company).
Expansion of Qualified Energy Conservation Bonds
The Stimulus Bill expands the qualified energy conservation bond program by $2.4 billion, from a national limit of $800 million to $3.2 billion. These bonds may be issued to finance a wide variety of qualified conservation purposes, which the Stimulus Bill clarifies to include capital expenditures to implement green community programs such as grants, loans and other repayment mechanisms.
Carbon Dioxide Sequestration Credit Modified
The Stimulus Bill provides that carbon dioxide used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and otherwise eligible for a $10 per metric ton credit must be sequestered by the taxpayer in permanent geological storage to qualify for the credit.
Nonbusiness Homeowners Energy Credit Modified and Extended to 2010
The Stimulus Bill extends the nonbusiness energy tax credit available to homeowners making energy efficiency upgrades to their homes for one year through December 31, 2010, and increases the credit rate, the size of the credits available, and the lifetime caps on the credit. The Stimulus Bill also revises the standards of property that qualify for this nonrefundable credit.
Cap on Residential Energy Efficient Property Credit Eliminated
The Stimulus Bill eliminates the credit caps for solar hot water, geothermal, and small wind energy equipment, and eliminates the reduction in credits for property using subsidized energy financing.
Alternative Fuel Vehicle Refueling Property Credit Increased
The Stimulus Bill significantly increases the maximum tax credits available for the installation of qualified hydrogen refueling equipment at homes or businesses. It also increases the maximum tax credits and credit rate for installation of non-hydrogen refueling equipment.
Plug-In Electric Motor Vehicle Credit Modified
The Stimulus Bill creates a new 10 percent nonrefundable personal credit, up to $2,500, for electricdrive, low-speed vehicles, motorcycles, and threewheeled vehicles. The Stimulus Bill also creates a new 10 percent credit, up to $4,000, for the cost of converting any motor vehicle into a qualified plug-in, electric-drive motor vehicle. The Stimulus Bill also provides a credit up to $7,500 for each new qualified plug-in electric drive motor vehicle acquired after December 31, 2009.
While all of these incentives should encourage investment in alternative energy and energy efficiency projects, the extension of the PTC, the flexibility to elect the Business Energy Credit in lieu of the PTC to realize immediate tax benefits or to obtain Renewable Energy Grants to reduce the need for tax-equity financing, and the creation of the new 30 perecent tax credit for investment in manufacturing of renewable energy equipment are all of particular significance. These new and expanded tax credits and grant programs create new financing opportunities and are expected to have an immediate impact on the availability of financing for wind energy development, investments in solar panel manufacturing, and a wide array of other renewable energy projects.