Tax Cut Extentions Equals Renewable Energy Opportunity for Indian Country!

It is official.

The just-concluded fight in Congress over taxes has mostly been viewed as an argument over the Bush-era tax cuts, but it was also a cliffhanger make-or-break deal for a variety of energy taxes.

The grant program was scheduled to expire on Dec. 31 because Congress figured the recession would be over by then and corporate profits would return, once again creating a market for the tax credits. The tax credit program is in place through 2012.

But the recession is still with us. So the bill that extended the Bush-era tax cuts for two years also included a one-year extension in the deadline to start construction of new renewable energy projects to qualify for Treasury cash grants. 

            The bill also allows a 100% depreciation bonus on new equipment placed in service after September 8, 2010 through the end of next year.  However, the bonus could be claimed only if the taxpayer was not committed on or before September 8, 2010 under a binding contract to invest in the project.   The bonus is a timing benefit.  Instead of depreciating a project over the normal depreciation period, the entire cost could be deducted in the year the project goes into service.

            The cash grant will be extended by simply changing dates in the existing program.  It would not be turned into a tax refund program. 

            Owners of new renewable energy projects that are completed in 2009, 2010 or 2011, or that start construction in those three years and are completed by a deadline, would qualify for Treasury cash grants.

            The deadlines to complete construction will not change.  They remain the end of 2012 for wind farms, 2016 for solar and fuel cell projects, and 2013 for other renewables.

            Because of the way the cash grant extension is drafted, developers who complete projects in 2011 will not have to worry about whether their projects started construction before 2009.  This relieves a concern that some geothermal developers have who might have started construction of projects before 2009 that will not be completed until after 2010.  Under the existing program, they would have been out of luck.  As long as such projects are completed in 2011, they do not need to worry about having started construction too early.

            The 100% depreciation bonus is equivalent to an additional 5.2% investment tax credit on a wind farm or solar project — if a developer can use it. 

            A number of other provisions in the bill will affect the project finance market:

            1. The measure opens the door to place additional facilities for making “refined coal” in service and qualify for 10 years of tax credits on the output.  “Refined coal” is coal that is less polluting than the raw coal used to produce it.  Facilities put into service by December 2011 will now qualify for tax credits.

            2. It will extend income and excise tax credits for ethanol, biodiesel, renewable diesel and alternative fuels at the existing rates, and the tariff on ethanol imports at the US border at the existing level, through December 2011. 

            3. Projects on Indian reservations will qualify for faster depreciation — for example, 3-year instead of 5-year depreciation for wind farms and solar projects — provided they are completed by December 2011.

            4. The bill will authorize another $3.5 billion in additional “new markets tax credits” in each of 2010 and 2011 as an inducement to make loans or equity investments in projects in census tracts with lower-than-average family incomes or with poverty rates of at least 20%.

            5.  The bill will give utilities more time through December 2011 to shed transmission assets to independent transmission companies or regional transmission organizations and spread the tax on any gain over eight years. 

            Due to the fact that analyzing, assessing, planning and implementing a Renewable Energy Project in Indian Country can take quite a bit of time to accomplish, we suggest that Tribal Economic Development Leaders take immediate action to begin the process now, so that these newly extended benefits to Indian Country may be realized before December 31, 2011!

It is important to note that only tax-paying entities are eligible for this grant.  Non-profits and Governments are not eligible.  Therefore, this is an important tool to attract outside investment in Indian Country.

Jason Watson is a Tribal Economic Development Consultant serving Native American Tribes with their Economic Development and Renewable Energy Initiatives.

For a Free phone consultation, please call (530) 873-0308

“Titus and Associates maintains a network of commercial and financial resources, including economic development consultants and experts in many business sectors such as solar, wind, biomass, geothermal and waste to energy.

We are dedicated to assisting American Indian Governments and Enterprises with products and advisory services that support economic development initiatives, while protecting sovereign rights.”

(Credit to Keith Martin, Chadbourne & Parke LLP and Tax Cuts for Energy, Too

By MATTHEW L. WALD is given for much of the information is this article.) 

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