Congress enacted the American Taxpayer Relief Act of 2012 on January 1, 2013. The bill's primary purpose was to stave off the so-called fiscal cliff by extending tax cuts and unemployment benefits. The bill also included a variety of energy-related provisions, including extensions of tax credits for producers of biofuels and renewable electricity. These policies will shape business activity in 2013.
The most prominent energy provisions in the act extend and modify incentives for producing renewable electricity. One extended the production tax credit for wind. The production tax credit is worth 2.2 cents per kilowatt hour of electricity produced for a 10-year period from a wind facility. While the production tax credit had previously been available only to wind facilities placed-in-service by the end of 2012, the new legislation extends the credit to any facility that begins construction before the end of 2013 to claim the 10-year credit. This provision is estimated to have a net of cost $12.109 billion over ten years but was seen by some as essential to continued investment in renewable energy facilities. A parallel provision extended the investment tax credit in lieu of production tax credit, which gives a tax credit equal to 30 percent of eligible investment in renewable facilities in the year that the facility is placed-in-service. Facilities must begin construction by the end of 2013. This provision is estimated to cost $135 million over ten years, suggesting Congress thinks the investment tax credit will be applied to about $450,000,000 in qualified investments.
Other provisions extended credits for energy-efficient improvements to existing homes, plug-in electric vehicles and alternative vehicle refueling property, producing cellulosic bifuel, biodiesel and renewable diesel.
The extension of the renewable electricity credits will stimulate growth in an industry that has suffered from uncertainty over their renewal. Their previously-scheduled 2012 end led to a rush of construction to enable projects to qualify for the tax credits, but fewer new projects were announced in 2012 as they appeared unable to be placed in service before the deadline. The credits' renewal will likely lead to a similar scramble to complete at least some construction financing and begin construction in 2013. This in turn may mean busy caseloads for state environmental and energy permitting authorities, as developers pursue permits to enable construction to begin this year. Projects able to start construction in 2013 will be eligible for either the production tax credit or the investment tax credit, even if construction takes several years. This feature may help offshore wind and other projects with long construction times, if they can get the permits to start work this year.
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Showing posts with label production tax credit. Show all posts
Showing posts with label production tax credit. Show all posts
Renewables dominate new electric generating capacity
Wednesday, October 24, 2012
In September 2012, the United States added 433 megawatts of new utility-scale electric generating capacity - and according to a federal report, it all came from renewable resources.
The Federal Energy Regulatory Commission's September 2012 energy infrastructure update provides a summary of recent developments of natural gas, hydropower, electric generation, and electric transmission facilities. For electric generation, the report provides a breakdown of newly installed capacity by resource type.
According to the report, 5 wind projects came online in September, totaling 300 megawatts of capacity:
The Federal Energy Regulatory Commission's September 2012 energy infrastructure update provides a summary of recent developments of natural gas, hydropower, electric generation, and electric transmission facilities. For electric generation, the report provides a breakdown of newly installed capacity by resource type.
According to the report, 5 wind projects came online in September, totaling 300 megawatts of capacity:
- EDF Group’s 140 MW Phase 1 Pacific Wind in Kern County, California
- Forsyth Street Advisor LLC’s 57.6 MW Phase 1 Horse Butt Wind Farm in Bonneville County, Idaho
- KODE Novus I LLC’s 80 MW Phase 1 Novus Wind Farm in Texas County, Oklahoma
- Fire Island Wind LLC’s 17.6 MW Phase 1 Fire Island Wind Project in Anchorage Borough, Alaska
- Kodiak Electric Association’s 4.5 MW Phase 2 Pillar Mountain Wind project expansion in Kodiak Island Borough, Alaska
- NRG Energy & MidAmerican Renewables, LLC’s 50 MW Phase 5 Aqua Caliente Solar Project expansion in Yuma County, Arizona came online. The expansion brings the Aqua Caliente Project's operational photovoltaic capacity to 250 MW, making it currently the largest photovoltaic facility in the country.
- Zongyi Solar America’s 20 MW Tinton Falls Solar in Monmouth County, New Jersey, the largest photovoltaic project in New Jersey
- Southern Sky Renewable Energy LLC’s 5.6 MW Canton Landfill Solar Project in Canton County, Massachusetts, the largest solar facility in New England
Incremental hydropower tax incentives
Wednesday, March 28, 2012
Upgrading existing hydroelectric facilities to improve their efficiency or capacity can be cost-effective. Not only will the plant produce more electricity more efficiently, but the upgrades may qualify the facility for a tax incentive designed to spur the development of new renewable electricity generation. For example, installing inflatable flashboards or high-efficiency turbine runners could qualify a project for an energy production tax credit of 1.1¢/kWh.
As part of the sweeping Energy Policy Act of 2005, Congress amended section 45 of the Internal Revenue Code to expand the renewable electricity production tax credit (or PTC) to incremental production gains from efficiency improvements or capacity additions to existing hydroelectric facilities. Eligible improvements must be placed in service after August 8, 2005, and before January 1, 2014.
To qualify incremental hydroelectric generation for the tax credit, the project owner applies to the Federal Energy Regulatory Commission under section 1301(c). The Commission is required to certify the “historic average annual hydropower production” and the “percentage of average annual hydropower production at the facility attributable to the efficiency improvements or additions of capacity” placed in service during that time period. The applicant is then able to take the production tax credit for the incremental amount of electric energy produced as a result of the upgrades.
While a credit of 1.1¢/kWh may seem small, hydroelectric projects typically produce relatively large amounts of electric energy at a relatively low operating cost. Depending on the energy market, at times the tax credit may be worth half as much as the value of the underlying energy. Also, in this context, the tax credit is only available for the incremental generation produced above the historic baseline; thus allowing incremental hydropower production to qualify for the PTC arguably rewards investment in upgrades.
At the same time, the continued availability of the tax credit for any kind of renewable electricity is in doubt. Under current law, most renewable resources must be placed in service by the end of 2013 to qualify for the production tax credit. Wind energy projects must be placed in service by the end of 2012. Congress is considering whether to renew the tax credit, as it has done a number of times since it was first enacted in 1992. According to a Congressional Budget Office report released this month, tax credits for renewable energy sources cost the government $1.4 billion in fiscal year 2011.
As part of the sweeping Energy Policy Act of 2005, Congress amended section 45 of the Internal Revenue Code to expand the renewable electricity production tax credit (or PTC) to incremental production gains from efficiency improvements or capacity additions to existing hydroelectric facilities. Eligible improvements must be placed in service after August 8, 2005, and before January 1, 2014.
To qualify incremental hydroelectric generation for the tax credit, the project owner applies to the Federal Energy Regulatory Commission under section 1301(c). The Commission is required to certify the “historic average annual hydropower production” and the “percentage of average annual hydropower production at the facility attributable to the efficiency improvements or additions of capacity” placed in service during that time period. The applicant is then able to take the production tax credit for the incremental amount of electric energy produced as a result of the upgrades.
While a credit of 1.1¢/kWh may seem small, hydroelectric projects typically produce relatively large amounts of electric energy at a relatively low operating cost. Depending on the energy market, at times the tax credit may be worth half as much as the value of the underlying energy. Also, in this context, the tax credit is only available for the incremental generation produced above the historic baseline; thus allowing incremental hydropower production to qualify for the PTC arguably rewards investment in upgrades.
At the same time, the continued availability of the tax credit for any kind of renewable electricity is in doubt. Under current law, most renewable resources must be placed in service by the end of 2013 to qualify for the production tax credit. Wind energy projects must be placed in service by the end of 2012. Congress is considering whether to renew the tax credit, as it has done a number of times since it was first enacted in 1992. According to a Congressional Budget Office report released this month, tax credits for renewable energy sources cost the government $1.4 billion in fiscal year 2011.
Obama: renewable energy tax credit reforms
Thursday, March 1, 2012
President Obama's proposal to reform the way the U.S. taxes businesses includes making the soon-to-lapse production tax credit (PTC) for generating renewable electricity both permanent and refundable. If enacted, this proposal would support the renewable energy industry, but could lead to a change the way projects are financed.
Earlier this month, the President and the Department of the Treasury issued a joint report entitled, "The President's Framework for Business Tax Reform" (25-page PDF). The report presents a plan to reform America’s system of business taxation. It labels the U.S. tax system "uncompetitive and inefficient", noting that the U.S. has a relatively narrow corporate tax base further reduced by loopholes, tax expenditures, and tax planning, and that the nation has a high statutory tax rate.
The cure proposed in the report is presented as supporting the "competitiveness of American businesses and increasing incentives to invest and hire in the United States by lowering rates, cutting tax expenditures, and reducing complexity, while being fiscally responsible." It offers five key elements of business tax reform:
Second, the PTC would be refundable. This roughly means that if you qualify for the credit, you don't need any taxable income to be able to use the credit as an offset against tax liability; when a tax credit is refundable, you can often receive its value in the form of a check from the Treasury. The non-refundable nature of the PTC and the related investment tax credit (ITC) at present has led to business structures that allow multiple entities to invest in a project while allocating specific tax benefits to those investors capable of using them. According to the report, the result of the widespread use of these tax equity structures has been investment in inefficient tax planning. President Obama's plan would eliminate one of the key reasons behind the tax equity structure commonly used today, and could change the scope of developers interested in proposing renewable energy projects. For example, a developer with low or no U.S. tax liability would be able to reap the tax incentive without partnering with income-rich tax equity investors. Tax equity structures may still have value even if this proposal passed, but it could lead to a change in the way renewable energy projects are financed.
The President's tax reform plan has yet to be fully reviewed by Congress, and many observers believe it nearly impossible that it would pass as currently conceived. The renewable energy tax incentives at issue here may or may not be part of a final enacted tax reform plan. For now, in an election year, this proposal has strengthened the President's alliance with the renewable energy industry, as he has cast himself as their best hope for extended and improved tax credits if reelected.
Earlier this month, the President and the Department of the Treasury issued a joint report entitled, "The President's Framework for Business Tax Reform" (25-page PDF). The report presents a plan to reform America’s system of business taxation. It labels the U.S. tax system "uncompetitive and inefficient", noting that the U.S. has a relatively narrow corporate tax base further reduced by loopholes, tax expenditures, and tax planning, and that the nation has a high statutory tax rate.
The cure proposed in the report is presented as supporting the "competitiveness of American businesses and increasing incentives to invest and hire in the United States by lowering rates, cutting tax expenditures, and reducing complexity, while being fiscally responsible." It offers five key elements of business tax reform:
- Eliminate dozens of tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth in America
- Strengthen American manufacturing and innovation
- Strengthen the international tax system, including establishing a new minimum tax on foreign earnings, to encourage domestic investment
- Simplify and cut taxes for America’s small businesses
- Restore fiscal responsibility and not add a dime to the deficit
The President’s Framework would make permanent the tax credit for the production of renewable electricity, in order to provide a strong, consistent incentive to encourage investments in renewable energy technologies like wind and solar. As with the R&E Tax Credit, the United States has to date provided only a temporary production tax credit for renewable electricity generation. This approach has created an uncertain investment climate, undermined the effectiveness of our tax expenditures, and hindered the development of a clean energy sector in the United States. In addition, the structure of renewable production and investment tax credits has required many firms to invest in inefficient tax planning through tax equity structures so that they can benefit even when they do not have tax liability in a given year because of a lack of taxable income. The President’s Framework would address this issue by making the permanent production tax credit refundable.Several features of this proposal are worth noting. First, the production tax credit would become permanent. To date, the PTC has been enacted, expired, and re-enacted multiple times, although occasionally with breaks in between periods of eligibility. The PTC soon faces expiration yet again. Renewable energy developers say that the uncertainty over its future significantly chills interest and development in the renewable sector. President Obama's plan to make the tax credit permanent would be a positive improvement from their perspective because it represents a longer-term commitment to stable tax treatment. From the national perspective, this longer-term commitment may spur investment and jobs, although it faces challenge from those who do not believe permanent tax credits should be ever used to support renewable energy, let alone permanently.
Second, the PTC would be refundable. This roughly means that if you qualify for the credit, you don't need any taxable income to be able to use the credit as an offset against tax liability; when a tax credit is refundable, you can often receive its value in the form of a check from the Treasury. The non-refundable nature of the PTC and the related investment tax credit (ITC) at present has led to business structures that allow multiple entities to invest in a project while allocating specific tax benefits to those investors capable of using them. According to the report, the result of the widespread use of these tax equity structures has been investment in inefficient tax planning. President Obama's plan would eliminate one of the key reasons behind the tax equity structure commonly used today, and could change the scope of developers interested in proposing renewable energy projects. For example, a developer with low or no U.S. tax liability would be able to reap the tax incentive without partnering with income-rich tax equity investors. Tax equity structures may still have value even if this proposal passed, but it could lead to a change in the way renewable energy projects are financed.
The President's tax reform plan has yet to be fully reviewed by Congress, and many observers believe it nearly impossible that it would pass as currently conceived. The renewable energy tax incentives at issue here may or may not be part of a final enacted tax reform plan. For now, in an election year, this proposal has strengthened the President's alliance with the renewable energy industry, as he has cast himself as their best hope for extended and improved tax credits if reelected.
Inflatable flashboards at hydro dams
Thursday, February 9, 2012
Dam owners are increasingly enhancing their revenue by using inflatable flashboards to optimize their hydroelectric production. This new technology offers dam owners and operators increased safety and increased hydroelectric generation, as well as opening the door to tax credits and other incentives.
Flashboards have traditionally been a palisade of wooden boards inserted into the top of a dam's crest. Flashboards increase a dam's capacity to hold water. They are typically used seasonally in temperate climates, and are removed before winter. Flooding or even high water can wash flashboards away, impairing the dam's ability to hold water until they can be replaced. Replacing flashboards can entail danger to personnel, and it might be a long time before water levels recede enough to allow safe reinstallation. In the meantime, a dam's ability to safely store water can be reduced.
Inflatable flashboards allow operators to increase or decrease the effective height of the flashboard system remotely. The ability to quickly and safely restore pond elevation after a high flow event translates into increased electricity generation. For example, inflatable flashboards at the Deer Rips - Androscoggin 3 Hydroelectric Project on the Androscoggin River in Lewiston and Auburn, Maine, have been calculated as likely to increase electric generation by 4.56% compared to a historical baseline.
This incremental hydropower generation can be valuable to the dam owner. Not only does it allow the facility to produce more electricity, but it may also qualify the project for federal and state tax incentives. For example, Section 45 of the Internal Revenue Code provides a renewable energy tax credit to owners or operators of qualified renewable electric generation facilities. That credit was extended to the incremental production gains from efficiency improvements or capacity additions developed between 2005 and 2013. Developers can ask the Federal Energy Regulatory Commission to certify a historic baseline of power produced at existing dams, as well as the incremental increase in hydropower production due to qualifying investments. Once FERC has issued this certification, dam owners can provide that to the Internal Revenue Service to receive the tax credit.
Flashboards have traditionally been a palisade of wooden boards inserted into the top of a dam's crest. Flashboards increase a dam's capacity to hold water. They are typically used seasonally in temperate climates, and are removed before winter. Flooding or even high water can wash flashboards away, impairing the dam's ability to hold water until they can be replaced. Replacing flashboards can entail danger to personnel, and it might be a long time before water levels recede enough to allow safe reinstallation. In the meantime, a dam's ability to safely store water can be reduced.
Inflatable flashboards allow operators to increase or decrease the effective height of the flashboard system remotely. The ability to quickly and safely restore pond elevation after a high flow event translates into increased electricity generation. For example, inflatable flashboards at the Deer Rips - Androscoggin 3 Hydroelectric Project on the Androscoggin River in Lewiston and Auburn, Maine, have been calculated as likely to increase electric generation by 4.56% compared to a historical baseline.
This incremental hydropower generation can be valuable to the dam owner. Not only does it allow the facility to produce more electricity, but it may also qualify the project for federal and state tax incentives. For example, Section 45 of the Internal Revenue Code provides a renewable energy tax credit to owners or operators of qualified renewable electric generation facilities. That credit was extended to the incremental production gains from efficiency improvements or capacity additions developed between 2005 and 2013. Developers can ask the Federal Energy Regulatory Commission to certify a historic baseline of power produced at existing dams, as well as the incremental increase in hydropower production due to qualifying investments. Once FERC has issued this certification, dam owners can provide that to the Internal Revenue Service to receive the tax credit.
August 23, 2010 - nonethanol gasoline gone from Maine; loss of biofuel tax credit
Monday, August 23, 2010
In Maine, regulatory and market changes have led to the end of nonethanol gasoline's availability. While many vehicle engines can run on gasoline cut with ethanol like E10 (10% ethanol, 90% gasoline), certain engines like aircraft cannot handle the ethanol mix. Ethanol-gasoline mixes tend to absorb water (and then burn poorly), and can break down fiberglass fuel tanks and lines. Federal and state policies have required ethanol to be added to gasoline for a variety of reasons including economic support for domestic agrifuels production and the need for an alternative to toxic MTBE as a fuel oxygenator.
Want proof that regulatory uncertainty places a chilling effect on businesses? Here's a story from Vermont about how the loss of a biofuel production tax credit has led to the closing of a business, placing state money at risk. Biocardel Vermont LLC, located in Swanton, Vermont, had been pitched as being able to produce up to 8 million gallons of biodiesel a year from soybean and other oils. Biocardel had been eligible for a tax credit of $1 per gallon produced, and had received $645,000 in low-interest loans from the Vermont Economic Development Authority. Vermont also gave Biocardel tax credits potentially worth up to $534,522 if it completed its buildout and commenced full hiring and production. With the loss of the federal tax credit, the operation has now closed.
Massachusetts continues to deal with issues of how to site wind turbines. This article describes the tensions between those who want merchant-scale wind power in Massachusetts, and those who do not want to see that kind of development. Overlaid onto this mix, Governor Deval Patrick has pushed a bill through the state legislature to streamline the permitting process for wind projects.
Want to see tidal power generation in action? Get yourself to Eastport, Maine. Tomorrow, dignitaries will celebrate Ocean Renewable Power Company's announcement that its 60-kilowatt turbine-generator has successfully produced commercially marketable electricity. ORPC will us the 60 kW turbine-generator for a 60-day demonstration project at the Coast Guard's Eastport Station, and plans install a grid-tied 150 kW system next year.
Want proof that regulatory uncertainty places a chilling effect on businesses? Here's a story from Vermont about how the loss of a biofuel production tax credit has led to the closing of a business, placing state money at risk. Biocardel Vermont LLC, located in Swanton, Vermont, had been pitched as being able to produce up to 8 million gallons of biodiesel a year from soybean and other oils. Biocardel had been eligible for a tax credit of $1 per gallon produced, and had received $645,000 in low-interest loans from the Vermont Economic Development Authority. Vermont also gave Biocardel tax credits potentially worth up to $534,522 if it completed its buildout and commenced full hiring and production. With the loss of the federal tax credit, the operation has now closed.
Massachusetts continues to deal with issues of how to site wind turbines. This article describes the tensions between those who want merchant-scale wind power in Massachusetts, and those who do not want to see that kind of development. Overlaid onto this mix, Governor Deval Patrick has pushed a bill through the state legislature to streamline the permitting process for wind projects.
Want to see tidal power generation in action? Get yourself to Eastport, Maine. Tomorrow, dignitaries will celebrate Ocean Renewable Power Company's announcement that its 60-kilowatt turbine-generator has successfully produced commercially marketable electricity. ORPC will us the 60 kW turbine-generator for a 60-day demonstration project at the Coast Guard's Eastport Station, and plans install a grid-tied 150 kW system next year.
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