Saturday, December 09, 2006

Congress Extends and Expands Key Tax Breaks for Renewable Energy Projects

In one of its last formal actions, the 109th Congress finally voted to extend and expand several key tax breaks for renewable energy projects and programs.

The Tax Relief and Health Care Act of 2006 (large PDF) passed both the House and Senate in the waning hours of the session, clearing the way for President Bush, who is expected to sign the legislation. The Act includes several provisions that are important for the renewable energy sector:
  • Section 201 of the Act extends the Production Tax Credit (PTC) for certain qualified renewable energy generation projects. The PTC was due to expire on December 31, 2007 - that deadline has been extended until December 31, 2008;
  • Section 202 of the Act extends and expands the Clean Renewable Energy Bonds (CREB) program. As we reported recently, the CREB program provides tax credit bonds to certain renewable energy developers (only state and local governments and municipal and cooperative utilities are eligible). The CREB programs allows bond holders to deduct interest on the bond from their income taxes, thereby effectively providing an interest free loan to the project developer. The IRS recently authorized the use CREBs for 610 projects across the U.S. Section 202 of the new Act authorizes the the Treasury Secretary to issue an additional $400 million in CREBs (from $800 million to $1.2 billion), and extends the authority to issue the bonds one additional year, from December 31, 2007 to December 31, 2008. The provision also expands the limit on the amount of CREBs that may be issued to governmental developers (from $500 million to $750 million). Our previous report on the CREB program provides a link to the IRS regulations and procedures for applying for authority to issue these innovative bonds;
  • Section 204 extends the tax deduction available for certain expenditures on energy efficient commercial building properties from December 31, 2007 to December 31st 2008;
  • Section 205 extends the energy efficient new homes credit an additional year, from December 31, 2007 to December 31, 2008;
  • Section 206 extends the personal tax credit for expenditures on qualified photovoltaic systems or solar water heating systems an additional year, to December 31, 2008;
  • Section 207 extends the 10-percent business energy credit for the cost of new solar, geothermal, and qualified fuel cell power systems. The credit was extended one year, through December 31, 2008;
  • Section 209 expands the special depreciation allowance for certain cellulosic biomass ethanol plants by providing an additional first-year depreciation deduction equal to 50 percent of the adjusted basis for the qualified property.
For an extensive discussion of these and other provisions of the Tax Relief and Health Care Act of 2006, see the the Joint Committee on Taxation's technical explanation of H.R. 6408 (as introduced) (Large PDF).

Both the Associated Press and the Washington Post have additional coverage on the tax break legislation.

Renewable Energy Access also ran a feature article yesterday with comments from the advocacy organizations and industry groups that have been working behind the scenes to get this legislation passed. While the one-year extension in these credits is certainly welcome, most renewable energy advocates note that long-term incentives are needed to boost investment in renewable energy projects. The past pattern of extending tax credits in one or two year increments simply does not provide the level of certainty investors and developers need for project planning. A long-term extension of these and other renewable energy incentives should be a priority for the in-coming 110th Congress.

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