It has been a while since I last posted an update on the legislative outlook for the investment tax credit, production tax credit, and the Section 1603 grant. So what’s happened in the last few months?
Not a lot.
Members of Congress have put forth bills to extend the credits. They have given passionate speeches about the need for alternative energy and the loss of jobs if the credits are not extended. For example, House Ways and Means Select Revenue Measures Subcommittee ranking member Richard Neal (D-Mass.) recently said that with the technology still in the infant stage and with layoffs and stalled or delayed wind projects a possibility, “at this stage of development we’re going to continue to need some sort of support inside the code.” President Obama has also repeatedly called on Congress to pass an extension of the tax credits.
On the other hand, opponents have decried the government “picking winners and losers.” For example, Rep. Mike Pompeo (R-Kansas) testified in favor of eliminating all energy-related tax credits, which he said pits one industry against the other. Trying to solve the nation’s energy problems through the tax code is the wrong approach, he said.
One thing is clear: given the political polarization in Washington, the chances of major tax legislation passing before the November election is slim to nil. With the in-service deadline for wind power expiring at the end of the year, and the deadline for most other types of property (other than solar) expiring at the end of 2013, a little clarity from Congress would be welcome news to the industry.
The U.S. Fish and Wildlife Service released the final version of the Land-Based Wind Energy Guidelines today. These are a revised version of the voluntary guidelines discussed in our previous post.
Today the IRS will publish Notice 2012-23 answering several questions related to the receipt of Section 1603 grants, the cash reimbursement program created by ARRA to boost the renewable energy sector when the tax equity markets dried up.
Although the Section 1603 grant program in large part is based on the investment tax credit, the IRS did not administer the program, and it has provided little guidance on the tax implications of the Section 1603 grant. Another group from Treasury administers the grant program, and has provided a fair bit of guidance, including a list of frequently asked questions and answers. All of Treasury's prior guidance can be found here.
The new guidance from the IRS does not add much to, or conflict with, the guidance previously provided by Treasury. It does, however, add a degree of certainty for taxpayers who may have wondered whether the source of the guidance, Treasury v. IRS, would have an effect on the content. It did not.
Following up on last week's post on the extension of the production tax credit, there were a couple of interesting developments yesterday.
First, House Republicans offered to decouple the payroll tax cut from other measures to be considered in the payroll bill being negotiated by a House-Senate Conference Committee, and they may not require that the tax cut be offset by spending cuts or tax increases. Unfortunately, a “clean” payroll tax cut would not include an extension of the production tax credit. There will be more to come as this plays out in the halls of Congress.
Second, the President released his 2013 Budget which contains some interesting proposals regarding renewable energy that are likely to leave some folks happy and others feeling left out. The budget is not a great barometer of what will actually be passed later in the year, but it does signal the Administration's priorities.
The proposal would extend the production tax credit and the investment tax credit for wind facilities and wind property placed in service in 2013, but would not include extensions of the in-service date for any other type of property. The proposal would also extend Treasury's Section 1603 grant program to all otherwise qualifying property placed in service in 2012 (including property on which construction begins in 2012). The program currently only applies to property for which construction began in 2009, 2010, and 2011.
For property placed in service after 2012, the proposal would replace the grant with a refundable tax credit administered by the Internal Revenue Service. In other words, a developer would receive a tax refund from the IRS in much the same way the developer receives a grant from Treasury, except that it would be claimed on the developer’s tax return.
The refundable credit would be allowed with respect to property placed in service in 2013 in the case of wind, biomass, landfill gas, municipal solid waste, incremental hydropower, certain geothermal, and marine and hydrokinetic. The refundable credit would be allowed for property placed in service from 2013 through 2016 in the case of solar, fuel cells, microturbines, combined heat and power, small wind, and certain geothermal. Qualification requirements for the refundable credit would be the same (except for the effective date provisions) as the qualification requirements currently applicable under the Treasury grant program.
The production tax credit for wind projects is scheduled to expire at the end of the year, and the credit for geothermal, hydropower, and biomass expires at the end of 2013. Industry executives are vigorously lobbying Congress to extend the credits. The best vehicle for an extension is the payroll tax cut bill currently being negotiated by a House-Senate conference committee (H.R. 3630).
At a recent press briefing, Peter Kelley, vice president for public affairs at the American Wind Energy Association, said that “the urgency of this issue calls for extending it in the first quarter of this year because later will be too late.” The next opportunity for an extension would likely be in the lame-duck session at the end of the year, but executives say that by then the industry will have abandoned projects and manufacturers will be out of business. Wind industry executives visited Congress on February 8 to ask for a one-year extension of the credit.
Executives from the National Hydropower Association, the Biomass Power Association, and the Geothermal Energy Association echo the argument as to their respective industries. Utility-scale hydropower, biomass, and geothermal projects starting today would find it nearly impossible to be completed by the end of 2013 because of the lengthy licensing and build times required. For that reason, progress on new projects beyond 2013 has largely stalled. Industry representatives are seeking an extension through 2016 (currently only solar and a few other resources are extended through 2016). Read the February 8 letter to Congress from the hydropower, biomass, and geothermal representatives here.
Join us on Thursday, February 16, for Pierce Atwood's next Inside Policy Series which will feature a panel discussion with Kenneth Fletcher, Director of the Governor’s Office of Energy Independence & Security. Mr. Fletcher will be joined by Pierce Atwood attorneys Jared des Rosiers and William Hewitt for a lively discussion about Maine's energy challenges. A question and answer period will follow.
The event will be held from 12:00 p.m. to 1:15 p.m. at Pierce Atwood’s Portland office. Space is limited and seats will be filled on a first come, first serve basis. Click here for more details and to RSVP.
You can also join the discussion on Twitter. Follow us at @PierceAtwoodLLP and @RenewNewEngland as we live-tweet the event. Use hashtag #MEenergy.
The new markets tax credit program has been around since 2001, but only recently has it received much attention as a means of financing renewable energy projects. A full description of how new markets tax credit financing works is way beyond the scope of a typical blog post. Suffice it to say that tax credits are awarded to investors who make investments in certain “community development entities” that in turn take the cash and invest it in businesses located in low-income communities (as determined by census data).
The investor receives a federal tax credit equal to 39 percent of the investment spread over seven years. The business benefits through very-low-interest financing, and/or a measure of debt relief after the seven-year period. For projects that qualify and line up all the necessary parties the benefit is substantial.
A few years ago, Congress mandated that a larger percentage of new markets tax credits be employed in rural, rather than urban, areas. This meant that renewable energy projects, such as large-scale solar, wind, and biomass projects became attractive candidates for new markets tax credit financing.
One such project is Burgess BioPower located in Berlin, New Hampshire, and developed by Cate Street Capital. The 75-megawatt biomass production plant is expected to be the Northeast’s largest when completed and will play a large role in revitalizing an area of New Hampshire that has been struggling to stay afloat.
The project will benefit from new markets tax credit financing as well as a section 1603 grant roughly equal to 30 percent of the project cost. It stands as a model for pairing new markets tax credits and renewable energy tax credits to finance a worthwhile and important project. In total, the project was financed by:
For the right project there are intriguing, and creative, ways to leverage a section 1603 grant (or tax credit) to increase the amount of new markets tax credits available. Also increasing the potential benefit for projects located in Maine is the brand new Maine New Markets Capital Investment Program, which provides a 39 percent Maine tax credit for qualifying investments, thus creating an aggregate new markets tax credit equal to 78 percent of the investment.
On Tuesday of this week the Massachusetts Department of Environmental Protection (MassDEP) and Department of Public Health (MDPH) released the Wind Turbine Health Impact Study: Report of Independent Expert Panel (January 2012). Among other things, the expert panel was charged by the two agencies with identifying and characterizing the attributes of concern most commonly reported by individuals residing near wind power projects (e.g., noise, infrasound, vibration, and shadow flicker) and then – based on a evaluation of peer-reviewed scientific studies – assessing the magnitude and frequency of any potential impacts and risks to human health associated with the operation of these projects. Findings by the expert panel include:
MassDEP and MDPH will be holding three public meetings on the Report in February and will receive public comment until Monday, March 19 at 5 p.m. Electronic comments may be submitted to: WindTurbineDocket.MassDEP@MassMail.State.MA.US How the Report will be used both in Massachusetts and elsewhere in the northeast will be interesting to follow.
Additionally, although not part of the expert panel’s original charge, two members of the panel also provided MassDEP and MDPH an addendum, A Brief Review of Wind Power in Denmark, Germany, Sweden, Vermont, and Maine (January 2012). The addendum looks at wind power development in the two New England states and three countries with the goal of identifying whether there are best practices or lessons learned that could benefit Massachusetts. The authors identify three factors they believe contribute to greater project success:
The addendum identifies the Fox Islands Wind project on Vinalhaven Island in Maine as the one project in Maine or Vermont that is “especially noteworthy” because of its success and community involvement.
2011 finished with a flurry of New England renewable energy news. Here's what we've been following in the new year:
Cape Wind bouyed as SJC allows utility deal
The Supreme Judicial Court of Massachusetts has upheld the Department of Public Utilities' approval of the power purchase agreement between Cape Wind and National Grid. Cape Wind is still seeking long term agreements for the remainder of the energy produced by the facility.
New Hampshire biomass plants score PPAs while RPS undergoes revisions
In a deal apparently intended to head off appeal of the New Hampshire Public Utilities Commission's approval of long term contract with the developer of a 75-MW biomass in Berlin, NH, five independent biomass power producers have obtained approval of power purchase agreements with PSNH that will allow them to remain in operation.
Connecticut announces 20-year deals with two solar projects
The Connecticut Department of Energy & Environmental Protection announced that it has selected two 5 MW solar projects that will receive 20-year PPAs to purchase power at 22.2 cents per kWh.
Balsams conservation bid buoyed by online gift-giving
The Society for the Protection of New Hampshire Forest reports that it has raised over $315,000 for purchase of a conservation easement on a key parcel of land in Dixville Notch needed for the Northern Pass. The Society has until January 15th to raise the $850,000 needed for the easement; Northern Pass has offered $3 million for the property.
On December 15, Maine Public Utilities Commission Chairman Tom Welch addressed attendees of the Maine Renewable Energy Association’s 17th Annual Gathering. In his thoughtful and thought provoking presentation (pdf), Mr. Welch questioned the role of renewable energy in addressing climate change in the near- and medium-term, as well as the difficulty in achieving any politically palatable policy changes that could alter trends over the next century or two. What might this mean for the renewable energy industry, he asked? He suggested that in explaining the need for renewable energy to the public and to policy-makers, proponents of these sources of energy might need to change their focus. Instead of highlighting the reduction in carbon emissions achievable through a shift to renewable energy, proponents may find it more helpful, and even necessary, to highlight the other benefits of renewable energy projects. Mr. Welch summarized what he sees as the other key benefits in his presentation. His insightful remarks are well worth the read.