President Obama's Proposed Budget Includes $5 Billion Expansion of Tax Credit for Manufacturers of Renewable Energy ComponentsFebruary 11, 2010
If President Obama gets his wish, tax credits for manufacturers of renewable energy components will be expanded to "help spur private investment in clean energy manufacturing and create jobs, helping to lay the groundwork for American leadership in the new clean energy economy." (Budget FY 2011) The President's proposed budget for fiscal year 2011, revealed last week, includes a $5 billion expansion of the Advanced Energy Project Credit under Section 48C of the Internal Revenue Code of 1986, as amended (the "Section 48C Credit").
The Section 48C Credit, created by the American Recovery and Reinvestment Act of 2009, provides a credit to individuals or entities that establish, expand or re-equip manufacturing facilities for the production of certain renewable energy property (such as solar panels, wind turbines, fuel cells, electric vehicles, etc.). The Section 48C Credit is equal to 30% of the basis of the depreciable tangible property that is part of such a facility.
Before Congress created the Section 48C Credits, tax credits supporting the production of renewable energy were not balanced by any corresponding tax credits to encourage the domestic manufacturing of renewable energy or energy conservation components. To remedy this imbalance, in February 2009 Congress authorized $2.3 billion in Section 48C credits and mandated that they be allocated pursuant to a competitive application process administered by the Department of Energy ("DOE").
There is a vast appetite for Section 48C Credits. During the initial application process concluded in December 2009, the DOE received applications from over 500 individuals or entities, requesting over $8 billion in credits. President Obama's proposed $5 billion expansion of these credits is an attempt to meet the demand for Section 48C Credits. President Obama's proposal echoes legislation introduced in December by a bipartisan group of Senators that would allocate an additional $2.5 billion to the Section 48C Credits - an important indication that this budget initiative may have the legislative support required to convert it into reality.
Notably, neither President Obama's proposal nor the proposed bipartisan legislation would alter the Section 48C Credit application process - a process that has been attacked by applicants as complicated, costly and opaque. Following the conclusion of the initial application process for the Section 48C Credits, the DOE asked a variety of stakeholders for suggestions regarding how to improve that process. Godfrey & Kahn, which has helped clients prepare more than 15 grant requests for renewable energy and building efficiency projects under the Section 48C Credits and other DOE-administered programs and has secured more than $2.5 million in benefits under those programs, was among the stakeholders that provided feedback to the DOE. Based on our substantial experience with the DOE's application processes, we suggested that:
- The DOE provide feedback to applicants who were not successful in securing an allocation of Section 48C Credits, so that they can better prepare for any future allocation round.
- The DOE establish a hotline for timely responses to relevant inquiries during any future allocation round.
- The DOE add a step to the application process whereby smaller startup ventures could receive preliminary feedback from the DOE so that those ventures could better gauge the value of preparing a detailed final application for Section 48C Credits.
- The DOE provide some grant or loan funds to small businesses to finance the application process.
Given the momentum behind the expansion of the Section 48C Credits - some legislators have suggested that an expansion of these credits might be included in the jobs legislation currently being drafted by the Senate Finance Committee - it is important that manufacturers of renewable energy components continue to monitor this area.
For more information on the Section 48C Credits, contact Jed Roher, Andrew Turner or a Godfrey & Kahn Environmental and Energy Strategies Team member.