July 12, 2009
Administration Issues Rules For Cash Payments In Lieu Of Tax Credits For Renewables
Hoping to shine a light at the end of the tunnel for the financially struggling renewable energy industry, the Obama administration issued rules and eligibility criteria July 9 for a $3 billion federal program that gives developers immediate access to cash for their projects in lieu of the federal tax credits previously provided.
The goal of the program, which was approved earlier this year as part of the American Reinvestment and Recovery Act (ARRA), is to leverage private financing for some $10-14 billion in renewable energy projects that have been sidelined due to lack of investor backing, Treasury Secretary Timothy Geithner and Energy Secretary Steven Chu said jointly.
Cash payments in lieu of investment tax credits will support an estimated 5,000 biomass, solar, wind, and other types of renewable energy production facilities, they predicted.
Renewable energy industry officials were unanimous that the cash grants will provide them a much-needed boost. Said Denise Bode, head of the American Wind Energy Association, "As with all industry, the economic conditions of the past eight or nine months have held us back. We believe these grants will help get our companies back on track."
"Previously, these companies could file for a tax credit to cover a portion of the renewable energy project's cost," Treasury and Energy said. "Under the new program, applicants would agree to forgo tax credits down the line in favor of an immediate reimbursement of a portion" of development costs.
A wide range of renewable projects are eligible for cash payments, including wind, solar, biomass, wave, tidal and certain hydropower projects, generators burning trash and landfill gas, geothermal, fuel cell, microturbine and combined heat and power installations. Most are eligible for cash grants covering 30 percent of project costs, although a few types can only get 10 percent coverage.
Congress approved the program in response to concerns raised earlier this year by the wind, solar and other renewable energy industries that federal tax credits for clean energy projects were no longer attracting investors. Treasury and Energy said the direct payment program would provide an immediate lift to local economies by providing funds for shovel-ready renewable projects.
"In previous years, the tax credit has been widely used," Treasury said. "It is considered a successful incentive for encouraging the development of renewable energy. In 2006, approximately $550 million in tax credits were provided to 450 businesses."
But the department added, "The rate of new renewable energy installations has fallen since the economic and financial downturns began, as projects had a harder time obtaining financing."
The problem, industry officials said, was that banks and investment firms that suffered major losses in the economic downturn did not have any profits to be offset by the tax credits and thus were not investing in renewable projects.
But, said Rhone Resch, Solar Energy Industries Association president and CEO, investors have also been waiting for the administration to act on the cash grants program. "Financing for commercial solar installations, including utility-scale solar plants, has been impaired by great uncertainty in financial markets and anticipation of stimulus provisions like the grant program," he said. "There are dozens of large solar power projects in the pipeline that can now move forward."
The program will provide upfront cash injections for companies that place eligible renewable energy facilities in service between Jan. 1, 2009, and Dec. 31, 2010, regardless of when construction begins. Projects placed in service after 2010 and before the credit termination date, if construction of the property begins between Jan. 1, 2009, and Dec. 31, 2010, are also eligible.
Tax credit termination dates range from Jan. 1, 2013, for large wind projects to Jan.1, 2014, for biomass, ocean energy and other technologies, and Jan.1, 2017, for solar and other types of projects.
Resch praised the administration for acting on the cash grants, but stressed that delays in getting the program up and running had cut into the time the tax credits were available to project developers. He called on Congress to add provisions in the energy legislation currently pending in Congress to extend the program for one year.
The administration said it expects companies to begin submitting applications later this month, and guidance on filing is available at: www.treas.gov/recovery; www.treas.gov/recovery/docs/guidance.pdf; www.treas.gov/recovery/docs/energy-terms-and-conditions.pdf; and www.treas.gov/recovery/docs/application.pdf.