I had no sooner sat down to write my
blog than I received an e-mail from the EPA’s Landfill Methane Outreach Program
(LMOP) with information on how the recently issued stimulus package can benefit
landfill gas (LFG) energy project development. The timing of this could not be
better, as I am also pulling together all the last-minute details for my trip to
Atlanta next week for SWANA’s Landfill Gas Symposium. So rather than meddle with
LMOP’s missive, let me give it to you full strength.
On February 17, 2009, President Obama
signed the American Recovery and Reinvestment Act of 2009. Below is a summary of
two key financial incentives that the act offers LFG energy projects. LMOP is in
the process of reviewing other provisions that could affect LFG energy projects
and will provide updated information soon.
Extension and Adjustment of the Renewable Electricity Production Tax
Credit
The Renewable Electricity Production
Tax Credit (PTC) is a per kilowatt-hour (kWh) federal tax credit for electricity
generated by qualified energy resources. The American Recovery and Reinvestment
Act of 2009 amended the PTC to provide a tax credit of 1.0 cents/kWh for LFG,
open-loop biomass, and municipal solid waste resources. Projects that receive
other government grants or subsidies receive a discounted tax
credit.
For LFG energy projects, the
placed-in-service date has been extended to December 31, 2013. This requirement
has generally been interpreted to mean that the facility has generators
installed and working or are in a condition to generate electricity. The credit
can be claimed, however, only when electricity is produced and sold to an
unrelated third party. LFG energy project owners can claim the tax credit for
the first 10 years of operation. The legislation also allows LFG energy project
owners to make an irrevocable election to earn a 30% investment credit tax
rather than the PTC.
Alternately, the facility owner could
choose to receive a grant equal to 30% of the tax basis (that is, the reportable
business investment) for the facility, so long as the facility is depreciable or
amortizable. To earn a grant, the facility must be placed in service in 2009 or
2010, or construction must begin in either of those years and must be completed
prior to the end of 2013. Only tax-paying entities are eligible for the grant,
meaning federal, state, and local government bodies, nonprofits, qualified
energy tax credit bond lenders, and cooperative electric companies are not
eligible to receive the grant. The US Department of the Treasury will issue
additional guidance on opting for the grant option soon.
There is no maximum limit for credits
claimed through the PTC. To apply for the tax credit, a business must complete
Form 8835 “Renewable Electricity Production Credit,” available online,
and Form 3800 “General Business Credit,” available online.
More information can also be found on
the Database
of State Incentives for Renewables and Efficiency (DSIRE) Web
site.
Increased Funding for Clean Renewable Energy Bonds (CREBs)
Unlike normal bonds that pay
interest, Clean Renewable Energy Bonds (CREBs) pay the bondholders by providing
a credit against their federal income tax. In effect, CREBs provide
interest-free financing for clean energy projects. The American Recovery and
Reinvestment Act of 2009 allocated $1.6 billion for CREBs, which may be issued
by electric cooperatives, government entities, and certain lenders. The types of
projects for which bonds can be issued include renewable energy projects
utilizing LFG, wind, biomass, geothermal, solar, or municipal solid waste. The
current deadline (for previously allocated funding) by which bonds must be
issued is December 31, 2009.
The Internal Revenue Service (IRS)
has determined that facilities “functionally related and subordinate” to the
generation facility itself are also eligible for CREB financing. Examples of
these auxiliary components include transmission lines and interconnection
upgrades.
Under the new legislation the IRS is
directed to allocate the bonding authority equally among electric cooperatives,
government entities, and public power producers. Other changes for “new” CREBs
are:
* The federal tax credit is reduced to 70% of the interest
payment
* The bond holder can transfer the tax credit to another
party
* Taxpayers can carry forward unused credits into future
years
* Bond proceeds must be used within three years or a request for an
extension must be made
Each year, the IRS releases guidance
on its Web site on how the program will operate (e.g., criteria for determining allocations) and
to solicit applications.
More information can also be found on
the DSIRE
Web site.
Chances are I’ll have more
information for you upon my return from Atlanta.