25x’25

The announcement this week that the Treasury and Energy Departments are making $3 billion in stimulus funds available for renewable energy projects exemplifies the kinds of policies that need to be pursued to assure a new energy future. The program will provide direct payments in lieu of tax credits in support of an estimated 5,000 biomass, solar, wind, and other types of renewable energy production facilities that will reduce our dependence on fossil fuels, boost our economy and improve our environment.

The American Recovery and Reinvestment Act authorizes the Treasury Department to make direct payments to companies that create and place in service renewable energy facilities after January 1 of this year. Previously, companies could file for a tax credit to cover a portion of the renewable energy project’s cost. Under the new program, applicants agree to forgo tax credits down the line in favor of an immediate reimbursement of a portion of the property expense. This direct payment program allows for an immediate stimulus in local economies.

The program carries through on a recommendation from 25x’25 and other renewable energy advocates calling for direct payments in lieu of tax credits. In previous years, the tax credit has been widely used as a successful incentive for encouraging the development of renewable energy. In fact, in 2006, approximately $550 million in tax credits were provided to 450 businesses. However, the onset of the economic downturns dried up credit and the rate of new renewable energy installations fell as projects had a harder time obtaining financing. In making the renewable energy funding as an alternative to the tax credits, the DOE and Treasury expect a fast acceleration of businesses applying for the energy funds in lieu of a tax credit.

To expedite implementation of the program, Treasury and DOE have made available the terms and conditions, guidance, and a sample application on the Treasury Department Web site. Companies can prepare successful applications in advance of the launch of the Web-based application in the coming weeks.

The election to receive the cash grant is an irrevocable election that prohibits an applicant from also receiving the Production Tax Credit (PTC) or the Investment Tax Credit (ITC). For more information on electing the ITC or cash grant in lieu of the PTC, consult IRS Notice 2009-52.

Windustry, a community wind advocacy group, issued a notice this week reminding potential applicants that identifying whether the PTC, ITC or cash grant will be most financially beneficial to a particular project depends on a number of factors and will require a thorough financial analysis of a project. A report from Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory analyzes the various benefits of the PTC versus the ITC, which is assumed in the report to have the same value to the developer as the cash grant.

25x'25 Policy/Funding 25x'25 Vision, Biofuels, Biomass, cellulosic, DOE, ethanol, Farms, Federal Agencies, Federal Leadership, Geothermal, green jobs, national security, Obama Administration, renewable energy, Solar, Wind