The American Recovery and Reinvestment Act of 2009 (the "ARRA") includes several important tax and appropriation provisions important to the development of renewable energy and to energy efficiency efforts.
I. Key Tax Provisions. The tax title in the ARRA includes in excess of $300 billion in tax relief provisions, over $25 billion of which is devoted to incentivizing investment in renewable energy technology. Many of the energy-related tax provisions are expansions or extensions of existing programs; however, two provisions establish new programs that could significantly affect (i) how investments in renewable energy projects are structured and (ii) interest in investment in manufacturing related to renewable energy technologies. The energy-related tax provisions of the ARRA include:
A. New Programs. The ARRA tax title includes the following new provisions related to renewable energy.
Creation of renewable energy grants. In recognition of the recent constriction in the market for production and investment tax credits, Congress is allowing for-profit taxpayers that place in service a wide variety of renewable energy facilities (listed in further detail below) to receive a grant from the Treasury Department in lieu of claiming a production or investment tax credit for those facilities. The grant will be equal to a percentage of the taxpayer's basis in depreciable tangible personal property and tangible real property (not including buildings) that is used as an integral part of the facility. Notably, the grants are not available to state or local governments, or tax-exempt organizations. A taxpayer may receive a grant with respect to property that is part of any of the following renewable energy facilities or property:
- wind facilities;
- closed-loop and open-loop biomass facilities;
- geothermal facilities;
- landfill gas facilities;
- trash combustion facilities;
- qualified hydropower facilities;
- marine and hydrokinetic renewable energy facilities;
- qualified fuel cell property;
- solar property;
- qualified small wind energy property;
- geothermal property;
- qualified microturbine property;
- combined heat and power system property; and
- geothermal heat pump property.
The amount of the grant will generally be 30% of the taxpayer's basis in the applicable property, although the grant is reduced to 10% of the taxpayer's basis in the case of geothermal property, qualified microturbine property, combined heat and power system property and geothermal heat pump property. To qualify for the grant, the taxpayer must either place the facility in service in 2009 or 2010, or begin construction on the facility in 2009 or 2010 and place the facility in service before January 1, 2013, in the case of a wind facility; before January 1, 2014, in the case of a closed-loop or open-loop biomass facility, a geothermal facility, municipal solid waste (landfill gas and trash combustion) facilities, a qualified hydropower facility or a marine or hydrokinetic renewable energy facility; and before January 1, 2017 in the case of qualified fuel cell property, solar property, qualified small wind energy property, geothermal property, qualified microturbine property, combined heat and power system property and geothermal heat pump property. In addition, the taxpayer must apply for the grant by October 1, 2011.
Creation of credit for investment in advanced energy property. Section 1302 of the ARRA authorizes $2.3 billion in tax credits for investment in advanced energy property. The credit will be equal to 30% of a taxpayer's basis in certain depreciable tangible personal property or tangible real property (excluding buildings) related to any project that re-equips, expands or establishes a manufacturing facility for the production of:
- property designed to be used to produce energy from the sun, from wind, from geothermal deposits or from other renewable resources;
- fuel cells, mircroturbines, or energy storage systems related to electric or hybrid vehicles;
- electric grids that support the transmission of renewable energy;
- property designed to capture and sequester carbon dioxide emissions;
- property designed to refine or blend renewable fuels or to produce energy conservation technologies (including lighting and smart grids);
- new qualified plug-in electric drive motor vehicles and low-speed or 2-wheel or 3-wheel plug-in electric vehicles and components thereof; and
- other property designed to reduce greenhouse gas emissions.
The credit will be administered by the Treasury Department in consultation with the Secretary of Energy; credits will be awarded through an application process.
B. Expansions and Extensions of Existing Programs. The ARRA tax title expands or extends the following programs.
Extension of production tax credits. Section 1101 of the ARRA extends the production tax credit to wind facilities placed in service before January 1, 2013, and to most other qualified renewable energy facilities placed in service before January 1, 2014.
Election to take investment tax credit in lieu of production tax credit. Under Section 1102 of the ARRA, owners of wind facilities placed in service before January 1, 2013, and other qualified renewable energy facilities placed in service before January 1, 2014, may elect to take the investment tax credit in lieu of the production tax credit. Generally, this election would provide the owner of such a facility with a tax credit equal to 30% of the owner's basis in depreciable tangible personal property and tangible real property (not including buildings) that is used as an integral part of the renewable energy facility, instead of the 2.1 cents or 1 cent of credit for each kilowatt of energy produced at that facility.
Removal of cap on investment tax credit for qualified small wind energy property and repeal of reduction of investment tax credit for renewable energy facilities financed by subsidized energy financing or private activity bonds. Under prior law, the investment tax credit for qualified small wind energy property was limited to $4,000; Section 1103(a) of the ARRA removes that limitation. Also, under prior law, the owner of energy property eligible for the investment tax credit was, for purposes of calculating the credit, required to reduce its basis in that property to the extent the property was financed by tax-exempt bonds or other subsidized financing, thus reducing its investment tax credit (which is calculated as a percentage of eligible basis); Section 1103(b) of the ARRA eliminates this basis reduction. Thus, an owner of a qualifying renewable energy facility can now both receive tax-exempt financing for the facility and claim an investment tax credit.
Increase in the amount of energy conservation bonds by $2.4 billion, to $3.2 billion; Increase in the amount of clean renewable energy bonds by $1.6 billion, to $2.4 billion. Energy conservation bonds (ECBs) and clean renewable energy bonds (CREBs) are both qualified tax credit bonds that entitle holders to an annual, nonrefundable tax credit equal to a percentage of the outstanding face amount of the bonds. ECBs can be used by state, local and Indian tribal governments to finance a wide range of renewable energy investments, including capital expenditures to reduce energy consumption or build renewable energy facilities, research, education, and more; CREBs can be used by state, local and Indian tribal governments, public power providers and cooperative electric companies to finance capital expenditures related to renewable energy facilities.
Commuter benefits. Section 1151 of the ARRA increases the monthly per-employee cap on an employer's tax-free reimbursement for and/or payment of expenses related to commuter highway vehicles and transit passes to $175, placing these benefits on par with the allowed benefit for qualified parking.
Modification of the alternative motor vehicle credit and the credit for qualified plug-in electric drive motor vehicles. Sections 1141 through 1144 of the ARRA modify the alternative motor vehicle credit and the credit for qualified plug-in electric drive motor vehicles in several ways, including changing the phase-out of the credit for qualified plug-in electric drive motor vehicles from a total vehicle basis to a per-manufacturer basis and allowing the alternative motor vehicle credit against the alternative minimum tax. Notably, these sections of the ARRA also create two new credits: one for 10% of the cost (up to $2,500) of certain low-speed or 2-wheel or 3-wheel plug-in electric drive motor vehicles, and one for 10% of the cost (up to $4,000) of converting any motor vehicle to a qualified plug-in electric motor drive vehicle.
Expansion of the tax credit for alternative fuel vehicle refueling property placed in service in 2009 and 2010. Taxpayers are currently allowed to take a credit for 30% of their investments in qualified alternative fuel vehicle refueling property, subject to a $30,000 cap for business property and a $1,000 cap for non-business property. For qualified alternative fuel vehicle refueling property placed in service in 2009 and 2010, Section 1123 of the ARRA raises the percentage for calculation of the credit to 50% of the cost of such property, and raises the caps to $50,000 for business property and $2,000 for non-business property. In addition, the ARRA raises the cap to $200,000 for qualified alternative fuel vehicle refueling property used in a trade or business and related to hydrogen.
Modification of tax credit for carbon dioxide sequestration. Under prior law, a taxpayer could receive a tax credit equal to $10 per metric ton of qualified carbon dioxide captured by a taxpayer at a qualified facility and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. Section 1131 of the ARRA adds a third requirement, granting a credit only if such carbon dioxide is disposed of by the taxpayer in secure geological storage.
Extension and enhancement of credit for non-business energy property. Section 1121 of the ARRA extends the availability of the credit for non-business energy property by one year, through 2010; it increases the allowable credit for a taxpayer's qualified energy efficiency improvements to 30%, up from the previous 10% credit; and it raises the aggregate(per-taxpayer) cap for the credit to $1,500 (from $500).
Removal of certain caps on credits for residential energy efficient property. Section 1122 of the ARRA eliminates the per-taxpayer cap on the credit for qualified expenditures on solar water heating property, small wind energy property and geothermal heat pump property.
II. Key Appropriation Provisions. The ARRA includes over $20 billion in appropriations related to energy efficiency and renewable energy: $16.8 billion of the appropriations are through the Department of Energy and approximately $5 billion are through the General Services Administration.
A. Department of Energy Provisions. The Department of Energy received funding for the following:
Energy Efficiency and Conservation Block Grants. $3.2 billion for Energy Efficiency and Conservation Block Grants under subtitle E of Title V of the Energy Policy and Conservation Act ("EPCA") for assistance to states, eligible local governments and Indian tribes in implementing strategies to reduce fossil fuel emissions created as a result of activities within the jurisdictions of the eligible entities and to reduce the total energy use. Eligible activities include without limitation: conducting building energy audits, establishing financial incentive programs for energy efficiency improvements, making grants to non-profit organizations to perform energy efficiency retrofits, developing/implementing programs to conserve energy used in transportation, developing and implementing building codes and inspection services to promote building energy efficiency, installing light emitting diodes, and developing, implementing, and installing on or in any government building on-site renewable energy technology that generates electricity from renewable sources. $400 million shall be awarded on a competitive basis to grant applicants.
Renewable Energy Research, Development and Demonstration. $2.5 billion for funding for renewable energy technology research, development, demonstration and deployment activities. $800 million for projects related to biomass and $400 million for geothermal activities and projects. $50 million for support of research to increase the efficiency of information and communications technology and improve standards.
Weatherization Assistance Program. $5 billion for the Weatherization Assistance Program, part A of title IV of the EPCA,to assist low-income families in reducing their energy costs by sending funds to the states to weatherize low-income homes.
State Energy Programs and Funding. $3.1 billion for State Energy Program Recovery funding under part D of title III of the EPCA to provide grants to states and direct funding to state energy offices for energy priorities and program funding related to emerging renewable energy and energy efficiency programs and technologies.
Advanced Battery Manufacturing. $2 billion for advanced battery manufacturing under Section 136(b)(1)(B) of the Energy Independence and Security Act of 2007 ("EISA"). Grants for facility funding awards to manufacturers of advanced battery systems and vehicle batteries, including lithium ion batteries and hybrid electrical systems, component manufacturers and suppliers, and software designers.
Transportation Electrification. $400 million for Transportation Electrification Recovery funding under Section 131 of the EISA to implement a grant program to states, local governments, and metropolitan transportation authorities for qualified electric transportation projects that significantly reduce emissions, including shipside electrification of vessels, truck stop electrification, battery-powered auxiliary power units for trucks, electric airport ground support equipment and cargo handling equipment, electric or dual-mode electric rail, upgrades to supply electricity to the project, and ancillary infrastructure, including panel upgrades, battery chargers, in-situ transformers, and trenching.
Appliance Rebate Program. $300 million for Appliance Rebate Program and Energy Star recovery funding under Section721 of Energy Policy Act of 2005 ("EPA"). This funding will provide rebates for residential consumers for the purchase of residential Energy Star products to replace used appliances with more efficient models through eligible States.
Alternative Fueled Vehicles. $300 million for Alternative Fueled Vehicle Pilot Grant Program under Section 721 of the EPA. Funding to establish a grant program through the DOE to encourage the use of plug-in electric drive vehicles or other emerging electric vehicle technologies. Grant recipients include state governments, local governments, metropolitan transportation authorities, which recipients may partner with public and private entities. The grants may be used for the acquisition of alternative fueled vehicles and fuel cell vehicles or hybrid vehicles. The installation or acquisition of infrastructure necessary to directly support an alternative fueled vehicle, fuel cell vehicle, or hybrid vehicle project funded by the grant is also eligible.
Electricity Delivery and Energy Reliability. $4.5 billion to be used for funding electricity delivery and energy reliability activities to modernize the electric grid and for implementation of programs authorized under title XIII of the EISA. This funding will provide for research and development, pilot projects, and federal matching funds for the Smart Grid Investment Program to meet the goal of a modern electric grid, enhance security and reliability of energy infrastructure, and facilitate recovery from disruptions to the energy supply. $100 million within these funds for worker training. $10 million to implement Section 1305 of Public Law 110-140, which provides for Smart Grid interoperability framework.
Fossil Energy Research and Development. $3.4 billion for funding for the demonstration of carbon capture and sequestration technology demonstration projects as authorized under section 702 of the EISA, including without limitation, development of new or advanced technologies for the capture and sequestration of carbon dioxide, development of technologies that reduce cost and increase efficacy of advanced compression of carbon dioxide, modeling and simulation of geologic sequestration field demonstrations, quantitative assessment of risks relating to specific field sites for testing of sequestration technologies, and certain research and development.
Advanced Research Projects Agency-Energy. $400 million for Advanced Research Projects Agency-Energy as authorized under Section 5012 of the America Competes Act.
Innovative Technology Loan Guarantee Program. $6 billion for the cost of guaranteeing loans for proven renewable technologies and transmission technologies as authorized by Section 1705 of the EPA.
- Of which, $10 million for administrative expenses to support the Advanced Technology Vehicles Manufacturing Loan program.
B. General Services Administration Provisions. The General Services Administration received funding for the following energy efficiency and green energy initiatives:
Federal Buildings Fund Limitations on Availability of Revenue (including Transfer of Funds). $5.55 billion to be used for real property activities, of which not less than $4.5 billion shall be used to convert GSA facilities to High-Performance Green buildings as defined in Public Law 110-140, and $4 million shall be allocated for the Offi ce of Federal High-Performance Green Buildings, as authorized in the EISA.
Energy Efficient Federal Motor Vehicle Fleet Procurement. $300 million for the acquisition of motor vehicles for the Federal fleet to help stimulate the market for high-efficiency motor vehicles, increase fuel efficiency and reduce carbon emissions of the Federal motor fleet.
For more information contact the following individuals; Arthur J. Harrington (email@example.com, John L. Clancy (firstname.lastname@example.org), Lindsay B. Fathallah (email@example.com), Jed A. Roher (firstname.lastname@example.org).