US House and Senate Move Forward on American Recovery and Reinvestment Act

Of the US $550 billion allocated by H.R. 598 as it now reads, $8 billion is set aside as loans for renewable energy power generation and transmission projects. US $2 billion will go to energy efficiency and renewable energy research, development, demonstration and deployment activities. These funds will be awarded on a competitive basis to universities, companies and national laboratories. An additional $2 billion will be put into grants for advanced battery technology and $4.3 billion for various energy efficiency initiatives.

The American Wind Energy Association (AWEA) and the Solar Energy Industries Association (SEIA) have been vocal in recent weeks about changes they believe need to be made to both the solar investment tax credit (ITC) and the production tax credit (PTC) to help to spur more solar, wind, geothermal, biomass and ocean energy developments. The bill in its current form would help the wind, geothermal and other renewable energy sectors by extending the PTC sunset date. It would also give taxpayers (both individuals and corporate entities) the option to claim the ITC rather than the PTC for certain projects as well as give taxpayers the option to receive federal grants in lieu of claiming the ITC for certain projects.

If the bill passes both houses of Congress, the placed-in-service sunset date for wind projects to qualify for federal tax credits will be extended from January 1, 2010 to January 1, 2013. The bill would also push out the placed-in-service sunset dates for closed-loop biomass, open-loop biomass, geothermal, landfill gas, waste-to-energy and qualified hydropower facilities from January 1, 2011 to January 1, 2014. Marine and hydrokinetic renewable energy facilities would see the date extended from January 1, 2012 to January 1, 2014.

In addition to the extensions outlined above, the bill would allow taxpayers the option to claim the ITC rather than the PTC for wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, waste-to-energy, qualified hydropower, marine and hydrokinetic renewable energy facilities placed in service in 2009 or 2010. The ITC generally would be 30% of qualifying costs.

The most significant change to the tax credits legislation is the option to receive a grant from the U.S. Department of Energy (DOE) instead of claiming the ITC and the PTC. This change would only effect projects placed in service in 2009 and 2010 that qualify for the ITC. Owners of projects who would be allowed to claim the ITC in lieu of the PTC would be eligible for the grants. Federal, state, and local governments and tax-exempt entities would not be eligible for these grants, as they have no tax liability in the first place.

In the past week, RenewableEnergyWorld.com has reported that AWEA and SEIA have called for refundable tax credits. This provision of the bill is the House's answer to that call.

In fact, the federal grants would act much like a refundable tax credit. The dollar amount given under the grant program would be equal to the amount of the ITC for which the owner of the project otherwise would have been eligible. In most cases this would be 30% of the qualified cost of the project. The bill contains an appropriation provision to help ensure that funds would be available to the DOE to pay the grants. The DOE would be required to pay the grant to a project owner within 60 days of the submission of an application.

"The House legislation in its current form would provide critical help to keep the wind energy industry growing and creating jobs, so we can meet President Obama's ambitious renewable energy targets," said Gregory Wetstone, AWEA's senior director for Government and Public Affairs. "We'll be doing everything we can to promote a comparable Senate program to monetize renewable tax incentives. Without such provisions, the legislation will not be sufficient to keep our industry growing through the economic downturn."

According to law firm Stoel Rives LLP, however, there may be some issues with this provision. According to the firm's analysis of the bill, it is unclear if a grant could be paid or an application could even be filed before the qualifying facility has been placed in service. This makes it harder to determine when a company applying for grant funding could actually expect to receive money.

Senate Version Less Favorable for Renewable Energy Industry

There is a parallel version of the bill currently moving through the Senate. On January 23, Senate Finance Committee Chairman Max Baucus released his proposal for the economic stimulus bill. The proposal by Sen. Baucus is also called the American Recovery and Reinvestment Tax Act of 2009. His proposal was considered by the finance committee this week.

The Baucus bill includes similar provisions to the House version of the bill, including extending the PTC sunset date and allowing taxpayers to claim the ITC rather than the PTC for certain projects. What was left out of the Baucus bill was the proposal that would permit taxpayers to receive cash grants from DOE in place of the ITC. And this could be a major point of debate moving forward in the process according to Greg Jenner, a partner at Stoel Rives.

"That is the only difference, but it's a major difference," Jenner said. "The House bill is the one that has everyone talking. Most bills would allow companies to take the ITC in lieu of the PTC. The House bill however gives the option to trade those credits in as grants from DOE. What that means is that the industry doesn't have to go out and look for a partner that use the tax equity credit. They can monetize the credit and that is just huge for the industry."

Update

Earlier today Applied Materials president and CEO Mike Splinter met with President Obama and CEOs of several of America’s largest companies at the White House to discuss the American Recovery and Reinvestment Act. In the discussion, Splinter focused his remarks on key aspects of the clean technology agenda, including incentives for solar energy adoption as a way to create new jobs as the new administration and both houses of Congress look to reinvigorate and stimulate the United States economy.

Splinter identified a number of actions related to solar energy that are now under consideration as part of the recovery package that could rapidly create hundreds of thousands of jobs in the United States. These included refundability of the ITC, new tax incentives to locate solar manufacturing facilities in the U.S. and requiring the adoption of renewable energy systems on federal properties.

“President Obama is showing great leadership in energy and we are excited to see that his vision for a new America includes real change in the way we generate energy,” Splinter said. “The President’s objective to reduce reliance on fossil fuels by harnessing the power of the sun can be realized through solar technology and products that we are innovating and manufacturing here in this country. This could create thousands of new jobs and ultimately change the global energy equation."