After days of intense negotiation, House and Senate leaders reached an agreement on a $787 billion economic stimulus package. The conference report to H.R. 1, The American Recovery and Reinvestment Act, will be approved by both the House and Senate and sent to President Barack Obama, who will sign it into law as early as this weekend.  

This advisory describes the key renewable energy tax provisions of H.R. 1.  

Tax Provisions

Production Tax Credit  

The bill extends, and increases the utility of, the production tax credit (PTC) available to taxpayers that generate electricity from renewable energy resources:  

  • The PTC for wind projects is extended through December 31, 2012 (currently due to expire December 31, 2009);  
  • The PTC for most other types of power projects (open-loop and closed-loop biomass, geothermal, landfill gas, municipal solid waste, qualified hydropower) is also extended by three years, through December 31, 2013;  
  • The PTC for marine and hydrokinetic projects is extended by two years, through December 31, 2013, and  
  • The bill creates a new election option to claim the investment tax credit (ITC)—equal to 30 percent of qualifying project costs—in lieu of the PTC for projects placed in service through 2012.  

Tax Credit Exchangeable for Grant

The bill allows a taxpayer to exchange unclaimed ITCs for a Department of Treasury (“Treasury”) grant equal in amount to the forgone tax credits.

Under current law, ITCs are generated with respect to investments in certain qualifying energy property, including solar energy property, fuel cells and small wind energy property. As mentioned above, under the bill, taxpayers would be allowed to exchange PTCs generated with respect to other renewable energy resources (wind, biomass, geothermal, etc.) for ITCs. The Treasury grant would be available to all taxpayers exchanging ITCs, including those taxpayers that previously exchanged PTCs for ITCs under the new law.  

The Treasury cash grant program would effectively convert the renewable energy PTCs and ITCs into refundable business tax credits with respect to projects placed in service in 2009 or 2010. In addition, the grant covers projects placed in service after 2010 and before credit expiration in 2012, so long as construction began in 2009 or 2010.  

This aspect of the stimulus bill is the most significant provision for the renewable energy industry. Although Congress granted extensions of the tax credits for renewable energy in its October 2008 stimulus package, the utility of those credits has been vastly negated in the current economic climate, wherein few banks or other potential project investors are anticipating a profit (and a tax liability against which tax credits may be used) for 2009 or 2010.  

The Treasury grant would be nontaxable for federal tax purposes and would not decrease the depreciation basis of the project; however, one half of the ITC that would have otherwise been allowable will reduce depreciation basis. Federal, state and local governments and section 501(c) tax-exempt entities are not eligible for the grant. The grant operates similarly to the ITC and is subject to the same recapture rules. Treasury must issue the grant within 60 days of a project’s placed-inservice date or Treasury’s receipt of the grant application, whichever occurs later.  

The grant will not be available to a taxpayer that is a partnership or other flow-through entity if any partner, member or holder of a profits interest is a governmental or nonprofit entity.  

Other ITC Changes

The bill would make two other changes to the ITC: it would eliminate the tax credit cap of $4,000 currently applicable to a taxpayer’s qualified small wind energy property, and would remove the rule that reduces the creditable basis of energy property if the property has been financed by “subsidized energy financing” or the proceeds of “private activity bonds.”  

Bonus Depreciation Extended Through 2009

In 2008, business taxpayers benefitted from “bonus” depreciation that allowed taxpayers to elect to depreciate an additional 50 percent of the basis of qualifying new business property that was put into service in 2008. To qualify, property must have been eligible for depreciation under the modified accelerated cost recovery system and have a recovery period of 20 years or less (or fall into certain other narrow property categories). The bill extends this temporary benefit for capital expenditures incurred in 2009.

NOL Carryback Period

The bill extends the carryback period for net operating losses (NOLs) to five years, but only for companies with annual revenue of $15 million or less.  


The bill authorizes an additional $1.6 billion in new clean renewable energy bonds (New CREBs). New CREBs may be issued by local governments, public power providers, nonprofit utilities, cooperative electric companies and certain lenders to finance renewable energy facilities. New CREBs provide a return to holders in the form of tax credits. Under current law, the amount of New CREBs is subject to a national limitation of $800 million. The $1.6 billion will be subdivided for qualified projects as follows: 1/3 for state/local/tribal governments, 1/3 for public power providers and 1/3 for electric cooperatives.  

New Advanced Energy Investment Credit

The bill creates a new credit equal to 30 percent of the taxpayer’s investment in certain property used domestically in an advanced energy manufacturing project. A qualifying project is one that re-equips, expands or establishes a manufacturing facility for production of renewable energy property, energy storage systems for use with electric or hybrid electric vehicles, electric grids to support transmission or carbon capture or sequestration equipment. The basis of qualified property must be reduced by the amount of the tax credit. Qualified projects must be pre-certified by the Secretary of Treasury in consultation with the Secretary of Energy. The bill authorizes up to $2.3 billion in these tax credits.  

Other Provisions

New Department of Energy (DOE) Loan Guarantee Program

The bill provides $6 billion in loan guarantees for renewable energy projects, manufacturers of related components, transmission projects and leading-edge biofuel projects (biofuels capped at $500 million). Eligible projects must begin construction by September 30, 2011. Applicants must ensure that they will pay Davis-Bacon prevailing wages to be eligible.  

New Transmission Bonding Authority for Renewables

The bill provides $3.25 billion in additional bonding authority to both the Bonneville Power Administration (BPA) and the Western Area Power Administration (WAPA) for the purposes of building transmission that will deliver electricity from renewable energy resources.

Impact on Renewable Energy Project Development and Financing

The final stimulus package contains many provisions that will benefit the development of renewable energy projects in the United States and spur the creation and retention of domestic green jobs. In particular, the extension of the tax credit qualification periods, the option to claim either the PTC or ITC for certain projects (including wind) and the ability to exchange unused ITCs for cash are an important lifeline to an industry that has been contracting due to the financial crisis. Also, the movement of responsibility for the cash grant program from DOE to Treasury, which occurred at the conference stage, has helped reassure renewable energy developers that the grant will be timely paid.  

In the immediate term, however, it is unclear whether these changes will help renewable energy projects access debt or equity in the private market. It is also unclear how financing structures will evolve in response to both the cash grant and the convertibility of the PTC to the ITC. Will financing parties be available to monetize the remaining depreciation once a developer cashes in the project’s tax credits? Will the wind market move toward lease financings and away from joint ventures? Will the cost of financing in the current economy remain prohibitively high? It is also possible that the immediate utility of the new DOE loan guarantee program for projects using proven technologies will be thwarted if applicants remain unable to secure private financing even with new governmental supports. Nevertheless, it is clear that these important new measures will go a long way toward stimulating the U.S. green economy as soon as the credit markets loosen up.