Summary:
Note: The American Recovery and Reinvestment Act
of 2009 (H.R. 1) allows taxpayers eligible for the federal renewable
electricity production tax credit (PTC) to take the federal business energy investment tax credit (ITC) or to receive a grant from the U.S. Treasury Department instead of taking the PTC for new installations. The new law also allows taxpayers eligible for the business ITC to receive a grant from the U.S. Treasury Department instead of taking the business ITC for new installations. The Treasury Department issued Notice 2009-52
in June 2009, giving limited guidance on how to take the federal
business energy investment tax credit instead of the federal renewable
electricity production tax credit. The Treasury Department will issue
more extensive guidance at a later time.
The federal renewable electricity production tax credit (PTC) is a
per-kilowatt-hour tax credit for electricity generated by qualified
energy resources and sold by the taxpayer to an unrelated person during
the taxable year. Originally enacted in 1992, the PTC has been renewed
and expanded numerous times, most recently by H.R. 1424 (Div. B, Sec. 101 & 102) in October 2008 and again by H.R. 1 (Div. B, Section 1101 & 1102) in February 2009.
The
October 2008 legislation extended the in-service deadlines for all
qualifying renewable technologies; expanded the list of qualifying
resources to include marine and hydrokinetic resources, such as wave,
tidal, current and ocean thermal; and made changes to the definitions
of several qualifying resources and facilities. The effective dates of
these changes vary. Marine and hydrokinetic energy production is
eligible as of the date the legislation was enacted (October 3, 2008),
as is the incremental energy production associated with expansions of
biomass facilities. A change in the definition of "trash facility" no
longer requires that such facilities burn trash, and is also effective
immediately. One further provision redefining the term
"non-hydroelectric dam," took effect December 31, 2008.
The February 2009 legislation revised the credit by: (1)
extending the in-service deadline for most eligible technologies by
three years (two years for marine and hydrokinetic resources); and (2)
allowing facilities that qualify for the PTC to opt instead to take the
federal business energy investment credit (ITC) or an equivalent cash
grant from the U.S. Department of Treasury. The ITC or grant for
PTC-eligible technologies is generally equal to 30% of eligible costs.*
The tax credit amount is 1.5¢/kWh in 1993 dollars (indexed
for inflation) for some technologies, and half of that amount for
others. The rules governing the PTC vary by resource and facility type.
The table below outlines two of the most important characteristics of
the tax credit -- in-service deadline and credit amount -- as they
apply to different facilities. The table includes changes made by H.R.
1, in February 2009, and the inflation-adjusted credit amounts are
current for the 2009 calendar year. (See the history section below for
information on prior rules.)
| Resource Type |
In-Service Deadline |
Credit Amount |
| Wind |
December 31, 2012 |
2.1¢/kWh |
| Closed-Loop Biomass |
December 31, 2013 |
2.1¢/kWh |
| Open-Loop Biomass |
December 31, 2013 |
1.1¢/kWh |
| Geothermal Energy |
December 31, 2013 |
2.1¢/kWh |
| Landfill Gas |
December 31, 2013 |
1.1¢/kWh |
| Municipal Solid Waste |
December 31, 2013 |
1.1¢/kWh |
| Qualified Hydroelectric |
December 31, 2013 |
1.1¢/kWh |
| Marine and Hydrokinetic (150 kW or larger)** |
December 31, 2013 |
1.1¢/kWh |
The
duration of the credit is generally 10 years after the date the
facility is placed in service, but there are two exceptions:
- Open-loop
biomass, geothermal, small irrigation hydro, landfill gas and municipal
solid waste combustion facilities placed into service after October 22,
2004, and before enactment of the Energy Policy Act of 2005, on August 8, 2005, are only eligible for the credit for a five-year period.
- Open-loop
biomass facilities placed in service before October 22, 2004, are
eligible for a five-year period beginning January 1, 2005.
In
addition, the tax credit is reduced for projects that receive other
federal tax credits, grants, tax-exempt financing, or subsidized energy
financing. The credit is claimed by completing Form 8835, "Renewable Electricity Production Credit," and Form 3800, "General Business Credit." For more information, contact IRS Telephone Assistance for Businesses at 1-800-829-4933.
History
As originally enacted by the Energy Policy Act of 1992, the PTC expired at the end of 2001, and was subsequently extended in March 2002 as part of the Job Creation and Worker Assistance Act of 2002 (H.R. 3090). The PTC then expired at the end of 2003 and was not renewed until October 2004, as part of H.R. 1308, the Working Families Tax Relief Act of 2004, which extended the credit through December 31, 2005. The Energy Policy Act of 2005
(H.R. 6) modified the credit and extended it through December 31, 2007.
In December 2006, the PTC was extended for yet another year -- through
December 31, 2008 -- by the Tax Relief and Health Care Act of 2006 (H.R. 6111).
The American Jobs Creation Act of 2004
(H.R. 4520), expanded the PTC to include additional eligible resources
-- geothermal energy, open-loop biomass, solar energy, small irrigation
power, landfill gas and municipal solid waste combustion -- in addition
to the formerly eligible wind energy, closed-loop biomass, and
poultry-waste energy resources. The Energy Policy Act of 2005
(EPAct 2005) further expanded the credit to certain hydropower
facilities. As a result of EPAct 2005, solar facilities placed into
service after December 31, 2005, are no longer eligible for this
incentive. Solar facilities placed in-service during the roughly
one-year window in which solar was eligible are permitted to take the
full credit (i.e., 2.1¢/kWh) for five years.
* Prior to H.R. 1, geothermal facilities were
already eligible for a 10% tax credit under the energy ITC (26 USC §
48). However, the new legislation permits all PTC-eligible
technologies, including geothermal electric facilities, to take a 30%
tax credit (or grant) in lieu of the PTC. Recent guidance from the IRS
regarding the Treasury grants in lieu of tax credits indicates that
geothermal facilities that qualify for the PTC are eligible for either
the 30% investment tax credit or the 10% tax credit, but not both. The
window for the 30% tax credit runs through 2013, the in-service
deadline for the PTC, while the 10% tax credit under the section 48 ITC
does not have an expiration date.
** H.R. 1424 added marine and hydrokinetic energy as
eligible resources and removed "small irrigation power" as an eligible
resource effective October 3, 2008. However, the definition of marine
and hydrokinetic energy encompasses the resources that would have
formerly been defined as small irrigation power facilities. Thus H.R.
1424 effectively extended the in-service deadline for small irrigation
power facilities by 3 years, from the end of 2008 until the end of 2011
(since extended again through 2013).
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