Economic Stimulus Act Extends Renewable Energy Tax Credits
February 18, 2009
The tax section of the American Recovery and Reinvestment Act of 2009, which President Barack Obama signed on February 17, provides a three-year extension of the production tax credit (PTC) for most renewable energy facilities, while offering expansions on and alternatives for tax credits on renewable energy systems. The extension keeps the wind energy PTC in effect through 2012, while keeping the PTC alive for municipal solid waste, qualified hydropower, and biomass and geothermal energy facilities through 2013. In addition, a two-year extension of the PTC for marine and hydrokinetic renewable energy systems will keep that tax credit in effect through 2013. The PTC provides a credit for every kilowatt-hour produced at new qualified facilities during the first 10 years of operation, provided the facilities are placed in service before the tax credit's expiration date. For 2008, biomass facilities fueled with dedicated energy crops ("closed-loop biomass"), as well as wind, solar, and geothermal energy facilities earned 2.1 cents per kilowatt-hour, while other qualified facilities earned 1 cent per kilowatt-hour. See pages 33-34 of the American Recovery and Reinvestment Tax Act of 2009 (PDF 5.9 MB), as well as PDF pages 105-112 (labeled as pages 103-110) of the accompanying joint explanatory statement of the conference committee (PDF 24.9 MB). Download Adobe Reader.
Unfortunately, the current slump in business activity means that fewer businesses are seeking tax credits, which means that renewable energy producers are having trouble taking advantage of the PTC. With that in mind, the act also allows owners of non-solar renewable energy facilities to make an irrevocable election to earn a 30% investment credit rather than the PTC. The option remains in effect for the current period of the PTC, that is, through 2012 for wind energy facilities and through 2013 for other qualified renewable energy facilities. See pages 34-36 of the American Recovery and Reinvestment Tax Act of 2009, as well as PDF pages 112-113 of the joint explanatory statement of the conference committee.
Alternately, the facility owner could choose to receive a grant equal to 30% of the tax basis (that is, the reportable business investment) for the facility, so long as the facility is depreciable or amortizable. The grants are also available for renewable energy facilities that would normally earn a business energy credit of 10%-30%, including systems using fuel cells, solar energy, small wind turbines, geothermal energy, microturbines, and combined heat and power (CHP) technologies. To earn a grant, the facility must be placed in service in 2009 or 2010, or construction must begin in either of those years and must be completed prior to the termination of the PTC. For facilities that would normally earn a business tax credit, construction must be completed prior to 2017. The grants will be paid directly from the U.S. Treasury. A separate measure in the act removes limitations on the business credit based on how the systems are financed and also removes a business credit limit on small wind energy systems. See pages 36-39 and 153-158 of the American Recovery and Reinvestment Tax Act of 2009, as well as PDF pages 113-117 of the joint explanatory statement of the conference committee.