By Philip Tingle, Martha Groves Pugh, Madeline M. Chiampou, John Engel, and Caroline Hong Ngo
New energy tax credit legislation was introduced by Senators Jeff
Bingaman (D-NM) and Olympia J. Snowe (R-ME), under which natural gas,
combined heat and power, the Advanced Energy Manufacturing Tax Credit,
energy storage, Clean Renewable Energy Bonds, and offshore wind, among
other energy expenditures and projects, would all receive new or
expanded tax benefits.
Introduced September 29, 2010, by Senators
Jeff Bingaman (D-NM) and Olympia J. Snowe (R-ME), the Advanced Energy
Tax Incentives Act of 2010 (S. 3935) provides for a laundry list of
energy-related tax credits, expansions of existing tax benefits and
other tax changes. A partial list and summary of the more notable provisions follow.
Electricity, Gas and Thermal
Combined heat and power credit: Currently
there is a 10 percent investment tax credit for construction of
qualifying combined heat-and-power systems, subject to limitations.
The act would allow the credit to apply to the first 25 megawatts of
system capacity, as opposed to the current cap of 15 megawatts.
In addition, the act would remove the current 50-megawatt total system
size cap, thus allowing a much greater number of systems to qualify for
the tax credit.
Thermal system bonus depreciation:
The act would permit a 50-percent immediate depreciation deduction for
qualifying high-efficiency natural gas and biomass thermal systems
installed before 2012.
Natural gas distribution depreciation:
The act would extend for another two years, until the end of 2013, the
15-year depreciation period for natural gas distribution facilities
originally allowed by the Energy Policy Act of 2005.
Manufacturing Facility Projects
Advanced Energy Manufacturing Tax Credit expanded:
The Advanced Energy Manufacturing Tax Credit provides a tax credit of
up to 30 percent for qualifying investments in new, expanded or upgraded
advanced energy manufacturing projects. The U.S.
Departments of Energy and the Treasury review applications and award tax
credits based on a project's ranking relative to other projects.
Originally $2.3 billion was allocated to the Advanced Energy
Manufacturing Tax Credit, and the act would add an additional $2.5
billion to the program. View a newsletter that further discusses requirements and application procedures related to this credit.
Existing facilities efficiency tax credit: The act would create a new tax credit for existing manufacturing facilities that increase their energy efficiency.
The credit would be awarded competitively based on applications to the
Departments of Energy and the Treasury, and would be modeled on the
Advanced Energy Manufacturing Tax Credit previously discussed. Up to $1 billion would be allocated to this tax credit.
Energy storage property connected to the grid: The act would authorize $1.5 billion in tax credits for energy storage projects that connect to the electrical grid.
Projects would have to meet certain minimum capacity and efficiency
standards, and would be awarded credits competitively based on
applications to the Departments of Energy and the Treasury. The awarded investment tax credit would be up to 20 percent of project costs, with a cap of $30 million per project.
CREBs expanded: The act aims to extend Clean Renewable Energy Bond (CREBs) eligibility to certain grid-connected energy storage property.
CREBs previously have been used to finance facilities that generate
electricity from wind, closed- and open-loop biomass, geothermal, small
irrigation, hydropower, landfill gas, marine renewables and trash
Onsite energy storage:
The act would provide for an additional tax credit of up to 30 percent
for certain qualifying onsite energy storage projects, awarded
competitively. This credit would be capped at $1 million per project.
Wind and Other
REC payment exemption:
The act would exempt from federal taxation an annual amount of up to
$2,000 in payments for renewable energy certificates (RECs) received by
qualifying individual homeowners. A number of states now require utilities to generate a certain percentage of their electricity from renewable sources.
Some utilities have created programs under which customers may sell
back to the utility power generated by qualified renewable methods.
RECs are used to prove that the electricity was generated from a
qualified renewable source, and the utilities pay the customer for the
REC. Often RECs are transferable, subject to limitations.
Credit extension for offshore wind:
The "placed-in-service" deadline for qualifying offshore wind projects
for the production tax credit would be extended to December 31, 2016. The current deadline is December 31, 2012. The production tax credit for offshore wind is currently 2.2 cents per kilowatt hour.
CCS credit: The carbon
capture and sequestration (CCS) tax credit would be changed to an
allocated credit whereby the Departments of Energy and the Treasury
could determine which projects actually need the credit and project
owners could precertify the amount they would claim to provide greater
certainty to such owners as to whether they will fall within the
national cap. Currently, the CCS credit is available only
with respect to the first 75 million metric tons of carbon dioxide that
the U.S. Environmental Protection Agency certifies has been captured and
sequestered in a given year. This cap would be raised to 100 million tons of carbon dioxide.
Industrial water reuse credit:
The act would establish an investment tax credit for reuse, recycling
and efficiency measures related to process and sanitary water, and would
also apply to blow-down from cooling towers and team systems for use by
utility operators' thermo-electric generators. The credit
would range from 10 to 30 percent of the project cost, depending on the
energy savings achieved and certain other limitations.
Philip Tingle is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Miami office.
Phil's national tax practice includes representing clients in
restructuring, mergers and acquisitions, and other transactional energy
Martha Groves Pugh is counsel in the law firm of McDermott Will &
Emery LLP and is based in its Washington, D.C., office. She focuses her
practice on federal income tax issues with a particular emphasis on the
nuclear and energy industries. Marty has helped clients
seek and receive many private letter rulings and has extensive
experience in drafting legislative language for tax proposals.
Her practice also includes tax planning for proposed transactions and
advising clients on audits, appeals and litigation issues.
Madeline M. Chiampou is an associate in the law firm of McDermott Will
& Emery LLP and is based in the Firm's New York office. Madeline
focuses her practice on federal income tax matters relating to advising
domestic and international clients on taxable and tax-free mergers,
acquisitions and divestitures, corporate restructurings and finance
John Engel is an associate in the law firm of McDermott Will
& Emery LLP and is based in the Firm's New York office. He focuses
his practice on federal tax matters relating to corporate transactions
Caroline Hong Ngo is an associate in the law firm of McDermott Will
& Emery LLP and is based in the Firm's Washington, D.C.
office. Caroline focuses her practice on corporate and international tax
matters for U.S. and foreign multinationals, with particular emphasis
on acquisitions, dispositions, and restructurings, including
reorganizations and spin-offs.
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