Waste Heat and Clean Coal

Waste Heat and Clean Coal

July 09, 2015 | By Keith Martin in Washington, DC

WASTE HEAT AND CLEAN COAL projects would benefit from two tax bills that cleared the Senate tax-writing committee and are awaiting action by the full Senate.

Such bills are difficult to move all the way through Congress until a larger energy tax policy bill emerges.

One bill, proposed by Senators Tom Carper (D-Delaware) and Dean Heller (R-Nevada), would allow a 10% investment tax credit to be claimed on equipment that generates electricity from “exhaust heat or flared gas from an industrial process that does not have, as its primary purpose, the production of electricity” or from “a pressure drop in any gas for an industrial or commercial process.” The generating capacity of the project cannot exceed 50 megawatts. The tax credit could only be claimed on the incremental cost of the waste heat conversion equipment, but the baseline for comparison is confusing. The Senate Finance Committee said in its report on the bill: “Where waste-heat-to-power property is fully integrated into other industrial property, the amount eligible for credit is the incremental difference in cost between the property that has the ability to capture and convert waste heat to electricity and similar property that lacks such functionality.”

The other bill could spare owners of clean coal power projects that receive “clean coal power initiative grants” from the US Department of Energy under section 402 of the Energy Policy Act of 2005 from having to report the grants as taxable income.

Government grants received by corporations sometimes do not have to be reported as income either because Congress specifically exempted them from taxes or else because they are treated under section 118 of the US tax code as capital contributions to the corporation by someone who is not a shareholder. An example of a government grant that is not taxable because it is treated as a capital contribution is where a government makes a grant to a railroad to put its tracks on an overpass above a highway so that trains do not block traffic. The railroad has no income in the sense of an accession to wealth. It is no better off with the overpass than without; the work is done solely for the public benefit.

Under this standard, most government grants must be reported as income.

Section 118 applies only applies to grants received by corporations.

The bill would spare partnerships receiving clean coal power initiative grants after 2011 from having to report them as income if a corporation receiving such a grant would not have to report it.

The partnership would have to pay the US Treasury 1.18% of the grant received and also reduce its depreciable basis on any part of the project put in service, within 12 months after the basis of other assets by any excess not used to reduce basis in the project.

Senator John Cornyn (R-Texas) proposed the bill.

Three projects that received clean coal initiative grants, and have not been cancelled, are two integrated-gas combined-cycle power plants being developed by Summit Power near Midland, Texas and by Hydrogen Energy International, BP Alternative Energy and Rio Tinto in Kern County, California, and a post-combustion carbon capture demonstration project that NRG Energy, Inc. is developing in Thompsons, Texas.

Keith Martin in Washington