US Treasury Announces USD3bn In Renewable Energy Incentives

by Leroy Baker, Tax-News.com, New York

14 July 2009

The United States Treasury and Energy Departments have jointly announced that more than USD3bn is being made available to businesses to invest in renewable energy projects.

Funded through the American Recovery and Reinvestment Act (Recovery Act), the program will provide direct payments in lieu of tax credits in support of an estimated 5,000 bio-mass, solar, wind, and other types of renewable energy production facilities.

“This partnership between Treasury and Energy will enable both large companies and small businesses to invest in our long-term energy needs, protect our environment and revitalize our nation's economy," said Treasury Secretary Tim Geithner.

The Recovery Act authorized Treasury to make direct payments to companies that create and place in service renewable energy facilities beginning January 1, 2009. Previously, these companies could file for a tax credit to cover a portion of the renewable energy project's cost; under the new program, applicants would agree to forgo tax credits down the line and take an immediate reimbursement of a portion of the property expense.

"These payments will help spur major private sector investments in clean energy and create new jobs for America's workers,” said Energy Secretary Steve Chu. “It is part of our broad effort to double our renewable energy capacity in the next few years and make sure that America leads the world in creating the new clean energy economy of the future."

According to the Treasury, the tax credit has been widely used in previous years. In 2006, approximately USD550m in tax credits were provided to 450 businesses. However, the rate of new renewable energy installations has fallen since the economic and financial downturns began, as projects had a harder time obtaining financing. The government now expects a fast acceleration of businesses applying for the energy funds in lieu of the tax credit.

Treasury Department guidance explains that payments to eligible persons who place in service specified energy property are made under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009.

The purpose of the payment is to reimburse eligible applicants for a portion of the expense of such property. Eligible property under this program includes only property used in a trade or business or held for the production of income. Non-business energy property described in section 25C of the Internal Revenue Code (IRC) and residential energy efficient property described in section 25D of the IRC do not qualify for payments under this program but may qualify for tax credits under those provisions.

By receiving payments for property under section 1603, applicants are electing to forego tax credits under sections 48 and 45 of the IRC with respect to such property for the taxable year in which the payment is made or any subsequent taxable year. Applicants must agree to the terms and conditions applicable to the Section 1603 program.

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