The American Recovery and Reinvestment Act of 2009 (P.L. 111-5), signed into law on February 17, 2009 (the "Act"), contains a number of changes to the Internal Revenue Code (the "Code") that are specifically directed at various segments of the U.S. energy industry. Some of the more notable and taxpayer-favorable provisions of the Act are manifested in the form of credits, extensions and other tax breaks specifically targeting businesses promoting certain types of renewable energy sources. Set forth below is a summary of some of the tax changes contained in the Act that are most likely to be of interest to clients engaged in this segment of the energy production business.
Energy Property Credit: Under Sections 38 and 46 of the Code, a nonrefundable income tax credit is available with respect to investments in certain types of "energy property." Under Code Section 48, as amended by the Act, energy property is defined for this purpose as including "qualified small wind energy property," which is in turn defined as property which uses a "small wind turbine" (wind turbine with a nameplate capacity of not more than 100 kilowatts) to generate electricity. The energy credit available under this expanded investment tax credit is equal to 30% of the basis (generally, the acquisition cost) of the qualifying small wind energy property. Under pre-Act law, the tax credit otherwise available for such property was limited to $4,000, and expired as of December 31, 2008. The Act repealed this limitation, as applied to qualified small wind energy property, and the credit is now available for periods through December 31, 2016.
The 30% energy credit is also available under this provision for investments in equipment using solar power to generate electricity or (with certain exceptions) used to heat or cool structures.
Finally, under pre-Act law, where property was financed in whole or in part by subsidized financing or tax-exempt private activity bonds, the amount taken into account as basis for purposes of calculating the energy credit was reduced by a formula designed to "back out" that portion of the basis attributable to such tax-favored financing. This limitation was repealed by the Act for periods after December 31, 2008.
Renewable Resource Electricity Production Credit: A "renewable electricity production credit" is available for certain qualified renewable energy resources (including wind, biomass, geothermal and solar, among others) engaged in production and sale of electricity to third party consumers. The current rate at which the credit is available is an amount equal to 2.1 cents per kilowatt-hour produced and sold by the qualified facility.
Grants in Lieu of Electricity Production or Energy Credit Available: Under the Act, taxpayers otherwise eligible for either the energy tax credit or the electricity production credit may instead apply to the Treasury Department for a grant when they place in service certain specified energy property, to reimburse or otherwise defray the cost of the facility. In order to receive such a grant, the applicant must place the property in service during 2009 or 2010 or otherwise meet certain time deadlines with respect to commencement and completion of facility construction.
Qualifying Advanced Energy Project Credit: The Act also expands the category of creditable energy-related expenditures by allowing an income tax credit for investments in a "qualifying advanced energy project." This is defined as a project which re-equips, expands or establishes a manufacturing facility for the production of property designed to be used to produce various categories of renewable energy, including "energy from the sun, wind, geothermal deposits, and other renewable resources, as well as production of fuel cells, microturbines, energy storage and transmission systems, plug-in electric drive vehicles and other advanced applications of energy efficient technologies. The tax credit available under this legislation is potentially as much as 30% of the qualified investment, subject to dollar limitations to be identified by the Internal Revenue Service. Moreover, the availability of this credit is subject to an application process to be administered by means of a "qualifying advanced energy project program," which is scheduled to be established by the IRS, together with the Energy Department, by August 17, 2009. Once the program is established, interested parties must submit applications for certification of proposed projects for approval by the program.
