Additional Tax Benefits For Clean Energy in 2009?
According to a recent CNNMoney.com story, Congress is considering a further expansion of tax benefits for clean energy:
WASHINGTON -(Dow Jones)-December 19, 2008- Congress appears increasingly likely to expand tax benefits for renewable energy sources like wind and solar in an upcoming economic stimulus bill, say lobbyists and congressional aides. But for who, for how long, and under what conditions remain major question marks.
(Full story – By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@ dowjones.com)
Congress approved an extension of the renewable energy tax credits as part of the bailout package passed in October 2008, but the crisis in the credit markets has meant that little additional financing has become available.
The collapse of the financial sector has hit wind and solar projects hard. Construction of solar and wind power relies on upfront financing from third- party investors, mostly large banks who buy the tax credits.
The financial crisis felled some renewable energy tax credit investors, like Wachovia Bank (WB), and left others in a loss position, so they won’t have a need for tax credits this year. That has meant investment dollars are scarce for projects completed in 2009.
In the wind energy sector, project developers will have to decide whether to take delivery of turbines and other components in 2009, which may have been ordered months ago.
“It’s a difficult situation,” said Joshua Magee, an analyst at market research firm Emerging Energy Research. “They’ll have to evaluate on a project-by-project basis whether they can sustain a delay, or whether they need to go forward according to their original schedule.”
According to the story,
Senate Majority Leader Harry Reid, D-Nev., this week announced he supports making renewable energy tax credits refundable.
The industry’s hope is that making the credits refundable will boost their value to the point that more high-tech companies and other non-financial firms will want to invest. “This would substantially lower the reliance on third-party financial investors,” said Magee.
With a refundable credit, it’s also possible that some developers could self- finance and cut the third-party investors out of the equation entirely. That would depend upon how any new legislation is written. One concern voiced by some congressional staff is whether removing the third-party investors would create opportunities for fraud and abuse.
Tax benefits from investing in clean energy projects are two-fold. There are the tax credit benefits, which for solar projects are worth 30% of initial investment costs, and for wind projects are tied to the number of kilowatt hours of electricity produced. But investors also become co-owners of equipment, which they can depreciate over a five-year period.
These depreciation tax benefits are particularly important in the wind energy sector. As U.S. demand for wind energy has grown in recent years, costs of turbines and equipment has also risen dramatically. That has made the value of depreciation benefits to investors roughly equal to the value they get from the tax credit itself, people affiliated with the industry say.
“The reality is the depreciation can be as important as the tax credit in terms of making the financing work,” said Greg Wetstone, senior director of governmental affairs at the American Wind Energy Association.
Understanding the availability of state and federal funding, tax credits, and other incentives is key to knowing where the renewable energy industry is going, and what the opportunities for emerging businesses are. Part of our role at SBI is to keep up to date on issues like this, and be able to point our clients to sources of information that can shorten the learning curve in terms of finding their role in the new economy.
December 26th, 2008 at 10:31 am
[...] – Jonathan Cloud, December 26, 2008 (Originally posted at the main SBI site here.) [...]