This special Green Strategies bulletin alerts Ohio’s public and private renewable energy owners, investors and service providers to the provisions of the American Recovery and Reinvestment Act of 2009 (Act) that relate to Section 45 production tax credit (PTC), Section 48 energy tax credit (ITC), as well as other provisions of the Act that enhance Ohio future renewable energy investment and development.
In particular, the Act creates new programs that (i) allow project owners to receive grants from the federal government rather than offering credits to investors, (ii) allow project owners to claim an investment tax credit rather than a production tax credit for a wide range of PTC eligible facilities, (iii) allow project sponsors to claim a new advanced energy manufacturing tax credit and (iv) enhance and/or relax existing programs promoting renewable energy development.
Extension of the PTC
The Act extends the placed in service date for wind facilities for three years through December 31, 2012 and extends the placed in service date through December 31, 2013 for closed loop biomass, open loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste to energy and marine renewable facilities.
Election of ITC for a PTC Eligible Facility
Because of current market conditions, it is difficult for many project developers to find financing due to the uncertain future tax positions of potential investors in these projects. Therefore, the Act allows a wide range of PTC eligible facilities to claim the 30 percent ITC rather than the PTC, including wind, biomass, geothermal, landfill gas, trash, qualified hydropower and marine and hydrokinetic facilities placed in service from 2009 through 2012 (for wind) and through 2013 (for the other power sources). Projects making the election are no longer eligible to claim the PTC.
Converting the ITC to a Grant
As current economic conditions have severely undermined the effectiveness of both the PTC and ITC, facilities eligible for the ITC can instead receive a grant from the US Treasury in lieu of tax credits. In particular, facilities eligible to receive a grant include those traditional ITC eligible facilities such as solar and fuel cells, but also include new PTC eligible facilities, including wind facilities, that can now elect the ITC rather than the PTC. Most facilities are eligible for a 30 percent grant, but some (e.g. geothermal, combined heat and power, geothermal heat pump) qualify only for a smaller, 10 percent grant. The grant is used to reimburse an owner who places in service ITC eligible facilities for a portion of the owner’s expense incurred in connection with such property.
An applicant will qualify for a grant if an application is received by the Secretary of the US Treasury by September 30, 2011. However, the Act provides very strict timetables to procure a grant. First, construction of the project must begin in 2009 or in 2010; second, the US Treasury must pay the amount of the grant within 60 days of the placed in service date or the date of the application, if later; third, the project must be placed in service by the applicable PTC or ITC deadline that otherwise is applicable to the particular facility. There are also many technical rules governing the grant itself including rules that may potentially “recapture” the grant in similar ways that the ITC may be recaptured if certain conditions are not met after an owner claims the credit.
Advanced Energy Manufacturing Credit
Manufacturers in the wind, solar, storage, efficiency and transmission spaces of renewable energy development will be able to take advantage of a new 30 percent tax credit designed to benefit manufacturers of advanced energy property. Credits are available only for projects certified by the Secretary of the Treasury, in consultation with the Secretary of Energy, through a competitive process. The Secretary of the Treasury must establish the certification program no later than 180 days after the date of enactment of the Act and may allocate up to $2.3 billion in credits.
Subsidized Energy Financing
The Act repeals the rule that reduces the amount of the ITC if a project benefits from below market financing or issuance of tax-exempt bonds.
New Clean Renewable Energy Bonds (New CREBs) and Qualified Energy Conservation Bonds (QECBs)
The Act authorizes an additional $1.6 billion of New CREBs to finance facilities that generate electricity from the following resources: wind, closed loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewables and trash combustion facilities. In addition, the Act authorizes an additional $2.4 billion of QECBs and clarifies that in the case of any QECB issued for the purpose of providing loans, grants, or other repayment mechanisms for capital expenditures to be used by a government to implement green community programs, such QECB shall not be treated as a private activity bond. Therefore, private owners, developers and service providers may work with governments to implement green programs on behalf of governments and receive the benefit of low cost financing.
Miscellaneous Changes Authorized by the Act
A number of other miscellaneous changes are authorized in the Act, including repeal of certain tax credit cap amounts on a number of renewable energy facilities (e.g. small wind), new rules for alternative fuel vehicles and their refueling and the extension of the placed in service date for many non-business energy improvements until December 31, 2010, increasing the credit rate for those expenditures from 10 percent to 30 percent.
The changes authorized in the Act are designed to transform Ohio’s economy and create jobs in the near term.