Renewable Energy Tax Credits Could be Merged

Renewable Energy Tax Credits Could be Merged

February 01, 2014

A single clean energy tax credit would be created by combining eight existing tax credits for generating electricity under a draft bill that the Senate tax-writing committee staff released in December.

The proposal is one of several discussion drafts that the staff released late last year to show what the committee was considering including in a revamped corporate income tax code. Its future is unclear. In January, the committee chairman, Max Baucus (D-Montana), was named US ambassador to China. Baucus left in February to take up the post in Beijing. Corporate tax reform seems dead this year. However, there were rumors in Washington as the NewsWire went to print that the House tax-writing committee chairman, Dave Camp (R-Michigan), plans to press forward by releasing the full text of a comprehensive corporate tax reform bill by early spring.

The bill would combine all existing tax credits for generating electricity into a single clean energy credit that could be taken as production tax credits of 2.3¢ a kWh over 10 years on the electricity output or as a 20% investment tax credit in the year a project is completed. The credit would apply to new projects put in service after 2016. The production tax credit amount would be adjusted for inflation after 2013.

The full credits could only be claimed on projects with zero carbon dioxide emissions. Projects that emit between 1 and 372 grams of CO2 equivalent per kWh would qualify for reduced credits. The credit amount would be reduced linearly across the CO2 range in 1¢ increments for production tax credits and 1% increments for investment credits.

Wind, solar, nuclear, landfill gas and hydroelectric projects would qualify for full credits. Geothermal projects would probably qualify for production tax credits of 2.2¢ a kWh and a 19% investment credit. A typical wood-fired power plant might qualify for PTCs of 2¢ a kWh and a 17% ITC, while a power plant running on 60% digester gas and 40% natural gas might qualify for PTCs of 1.5¢ a kWh and a 13% ITC.

If the actual emissions prove worse than the anticipated emissions used to calculate the credit, then any investment credit claimed would be subject to partial recapture. The basis on which depreciation claimed would have to be reduced by the full investment credit claimed, according to a write up by the Joint Tax Committee staff.

Any CO2 captured and sequestered would not be considered emitted. CO2 emissions for biomass projects would be the net emissions.

The credit would phase out over three years starting the year after the Environmental Protection Agency advises that the annual average greenhouse gas emissions rate for electricity production in the United States is 372 grams or less of CO2 per kWh. Projects placed in service in the first year of the phase out would qualify for tax credits at 75% of the original level, 50% for projects placed in service the next year, and 25% if placed in service in the third year. Projects that were in service before the phase out would still be able to claim 10 years of PTCs at the full level.

An investment tax credit could be claimed on the cost of carbon sequestration equipment added to power plants that went into service before 2017. However, there would have to be at least a 50% reduction in CO2 emissions, and the CO2 would have to be disposed in secure geological storage.

Residential solar credits for homeowners who buy solar systems for generating electricity or producing hot water would be allowed to expire. This would give a boost to solar rooftop companies that retain ownership of systems and lease them or sell electricity from them to homeowners.

The draft bill would also eliminate investment tax credits for solar heating and cooling systems put to business use.

Wind and other projects that qualify for tax credits under current law because they were under construction by December 2013 would be given a deadline to complete the projects. There is none currently. The deadline would be the end of 2016. 

by Keith Martin