Alternative Energy and Energy Tax Incentives

1
Alternative Energy and Energy Tax Incentives

• Anthony DiGiacinto
• Senior Tax Manager
• June 11, 2009

2
Agenda

• Non-business tax incentives
• Business tax incentives
• New Jersey energy incentive program
• Cap and Trade
• Stimulus Grant Opportunities

3
Residential Energy Property Credit

• The credit is equal to 30 (up to 1,500) for
• Qualified energy efficiency improvements
  (building envelope components)
• any insulation material or system specifically
  and primarily designed to reduce the dwelling
  unit's heat loss or gain when installed in or on
  the dwelling unit.
• exterior windows, skylights and, doors.
• any metal roof or asphalt roof installed on a
  dwelling unit, but only if the roof has
  appropriate pigmented coatings or cooling
  granules that are specifically and primarily
  designed to reduce the dwelling unit's heat gain.
  
• Qualified energy property
• Electric heat pumps.
• Natural gas, propane, or oil hot water boilers
  and furnaces.
• Central A/C.
• Stoves using biomass
• Advanced main circulating fans.

4
Residential Energy Property Credit, continued

• Credit is for property placed in service in 2009
  and 2010.
• Each type of property must equal or exceed
  certain energy efficiency standards.
• The use of subsidized energy financing no longer
  disqualifies the expenditure from the credit.

5
Residential Alternative Energy Credit

• The credit is equal to 30 of the cost of
  eligible
• Solar water heaters
• Solar electricity equipment
• Fuel cell plants
• Wind energy property
• Qualified geothermal heat pumps
• Installed on or in connection with the taxpayers
  residence.
• Fuel cell property is limited to 500 per half
  kilowatt and must be installed on the taxpayers
  principal residence.

6
Residential Alternative Energy Credit, Contd

• Break-even analysis
• Solar-estimate.org/
• Variables zip code, utility, average monthly
  electric bill (used 175).
• Estimated system cost 52,300
• NJ SREC (over life of program) 58,339
• NJ Renewable Energy Incentive 8,835
• Federal Credit 15,390
• Cash break even point near the end of year 4.

7
Automobile Credits

• Plug-in Electric Drive Motor Vehicle Credit
• 2,500 plus 417 per kilowatt hour of battery
  capacity up to max of 7500 in total after 2009.
• Max credit in 2009 7,500 to 15,000 depending on
  weight of vehicle.
• Phased out after a manufacturer sells 200K cars
  in the U.S. after 2009
• Plug-in Electric Vehicle Credit

8
Automobile Credits, Contd

• Plug-in Electric Vehicle Credit
• 10 credit (capped at 2,500) for the purchase of
  2 or 3 wheeled electric vehicles and low speed
  vehicles.
• For vehicles purchased after February 17, 2009
  and December 31, 2011

9
Alternative Fuel Refueling Station Credit

• Credit of 50 (up to 50,000) for the
  construction of an alternative fuel refueling
  station.
• Credit if for property placed in service in 2009
  and 2010.
• Hydrogen related property remains at 30 up to
  max of 60,000.

10
Business Energy Tax Incentives

• Energy Investment Tax Credit (the ITC).
• Grant in lieu of ITC.
• Energy Production Tax Credit (the PTC).
• Election to take ITC in lieu of PTC.
• Credit for Investment in Advanced Energy
  Facilities.

11
Energy ITC

• The credit is equal to 30 of the cost of
• Qualified fuel cell property.
• Equipment using solar energy to produce
  electricity, to heat or cool water, or to provide
  solar process heat, except for heating a swimming
  pool.
• Equipment that uses solar energy to illuminate
  the inside of a structure using fiber-optic
  distributed sunlight.
• Qualified small wind energy property
• 10 for geothermal property, qualified
  microturbine, and property placed in service
  after 2016.

12
Grant in Lieu of ITC

• The ARRA turned the Energy ITC from income tax
  credits into a grant at the election of the
  taxpayer.
• Not available to governmental agencies,
  501(c)(3) entities, issuers of clean renewable
  energy bond issuers, or a partnership (or LLC)
  that has one of the above as a partner.
• The grant is available for projects that are
  placed in service in 2009 and 2010. Certain
  projects placed in service after 2010 will
  qualify if construction begins before 2011.
• The Secretary of the Treasury must receive the
  grant application by October 1, 2011 for the
  grant to be made

13
Grant in Lieu of ITC, Contd

• The grant works the same way as the ITC (i.e. it
  is equal to 30 of the qualifying cost of the
  property) but it will be paid in dollars 60 days
  after the later of the date the project is
  completed or the application for the grant is
  filed.
• Accordingly, the investors tax position becomes
  less relevant to the decision making process.

14
Energy PTC

• The PTC is an income tax credit based upon the
  amount of electricity sold from qualified
  facilities. The credit is generally claimed over
  a 10 year period for electricity produced from
  renewable resources. These include trash,
  biomass, wind, wave, geothermal, and hydropower
  facilities.

15
Claiming the PTC in lieu of the ITC

• Another change under the ARRA may enhance the tax
  benefits is an election that a taxpayer may make
  to take the ITC instead of the PTC for qualified
  projects.
• This election will be attractive to the owners of
  such facilities if they do not expect to be
  profitable over the 10 year credit period.
• Additionally, many of these projects are capital
  intensive and short on output making the PTC
  economically more attractive.
• Also, see above for the grant in lieu of credit
  provision

16
Credit for Investment in Advanced Energy Projects

• The Credit for Investment in Advanced Energy
  Projects enacted as part of the ARRA adds a new
  tax credit designed to keep manufacturing jobs in
  the U.S.
• The credit is equal to 30 of the taxpayers
  investment in any qualified advanced energy
  project.
• The projects must be certified by the U.S.
  Treasury in conjunction with the Department of
  Energy by a process yet to be announced.
• The total amount of credits awarded cannot exceed
  2.3 billion.
• Once the project is certified the taxpayer will
  have 3 years to place the project in service.  

17
Credit for Investment in Advanced Energy
Projects, Contd

• These projects include the establishment,
  expansion, or the re-quip of a manufacturing
  facility for the production of
• Property designed to be used to produce energy
  from the sun, wind, geothermal deposits, or other
  renewable resources,
• Fuel cells, microturbines, or an energy storage
  system for use with electric or hybrid motor
  vehicles,
• Electric grids to support the transmission of
  intermittent sources of renewable energy,
  including storage of that energy,
• Property designed to capture and sequester carbon
  dioxide emissions,
• Property designed to refine or blend renewable
  fuels, other than fossil fuels, to produce energy
  conservation technologies (including
  energy-conserving lighting technologies and smart
  grid technologies),
• New qualified plug-in electric drive motor,
  qualified plug-in electric vehicles or components
  which are designed specifically for use with
  those vehicles, including electric motors,
  generators, and power control units, or
• Other advanced energy property designed to reduce
  greenhouse gas emissions as may be determined by
  IRS.

18
New Jersey Incentives SRECs

• SREC stands for Solar Renewable Energy
  Certificate and is a tradable certificate that
  represents all the clean energy benefits of
  electricity generated from a solar electric
  system. Each time a solar electric system
  generates 1000kWh (1MWh) of electricity, an SREC
  is issued which can then be sold or traded
  separately from the power.
• A market for SRECS is driven primarily by New
  Jersey's electricity suppliers who are required
  to purchase SRECs annually under New Jersey's
  Renewable Portfolio Standard (RPS).This
  requirement increases each year, so that SRECs
  from the equivalent of a total of 90MW of solar
  generation capacity will be required by 2009. 
  Enough electricity to power approximately 8,000
  homes.
• All solar system owners in New Jersey with
  grid-connected generators can participate in New
  Jersey's SREC Program. 

19
New Jerseys Renewable Energy Incentive Program

• The Renewable Energy Incentive Program offers
  upfront incentives to customers of utilities
  regulated by the BPU who invest in eligible
  electricity-producing equipment for use in
  offsetting onsite electric consumption. REIP
  incentives improve the financial returns of
  renewable energy investments by offsetting the
  cost of system installation

20
New Jerseys Renewable Energy Incentive Program,
Contd

• Customer-Sited Renewable Energy
• Technology Type
• Upfront Incentives RECs
• Solar Electric Small (up to 50 kW DC) X X
• Solar Electric Large (gt50 kW DC) X
• Sustainable Biomass X X
• Wind Terrestrial1 X X
• Fuel Cell (if powered from a renewable resource)
  X X

21
New Jerseys Renewable Energy Incentive Program,
Contd

• REIP Solar Upfront Incentive Schedule (Effective
  February 3, 2009)
•   A B
• System Type Residential
  Non-Residential
•  
• Up to 10,000 watts w/ Energy Audit 1.75 per
  watt N/A
• Up to 10,000 watts w/out Energy Audit 1.55 per
  watt N/A
• Up to 50,000 watts N/A 1.00 per watt
• gt 50,000 Watts N/A N/A
• Example A home-owner wants to install a 4,000
  watt system at their residence. To calculate the
  incentive, use column A in the table above for
  Residential Solar installations. The customer
  elects to have an energy audit performed by a
  certified performance contractor. The system is
  below 10,000 watts so the grant is 7,000 or
  4,000 x 1.75.

22
Cap Trade

• The government or other body sets a limit or cap
  on the amount of a pollutant that can be emitted.
  Companies or other groups are issued emission
  permits and are required to hold an equivalent
  number of allowances or credits which represent
  the right to emit a specific amount. The total
  amount of allowances and credits cannot exceed
  the cap, limiting total emissions to that level.
  Companies that need to increase their emission
  allowance must buy credits from those who pollute
  less. The transfer of allowances is referred to
  as a trade. In effect, the buyer is paying a
  charge for polluting, while the seller is being
  rewarded for having reduced emissions by more
  than was needed. Thus, in theory, those that can
  easily reduce emissions most cheaply will do so,
  achieving the pollution reduction at the lowest
  possible cost to society.
• There are active trading programs in several
  pollutants. For greenhouse gases the largest is
  the European Union Emission Trading Scheme. In
  the United States there is a national market to
  reduce acid rain and several regional markets in
  nitrogen oxides. Markets for other pollutants
  tend to be smaller and more localized.

23
ARRA Stimulus Grants

• NJs share of the stimulus 3.1 billion allocated
  to energy related projects is 73,643,000.
• Energy Efficiency and Conservation Block Grants
  provide funds that will help the State and local
  governments in New Jersey reduce total energy
  use, cut fossil fuel emissions, and improve
  energy efficiency in their vehicle fleets and
  facilities. As the State awaits further guidance
  from the U.S. Department of Energy on program
  details, it is considering various approaches to
  allocating the funds that will achieve the goals
  of American Recovery and Reinvestment Act. The
  State is also considering matching programs, loan
  programs and other ways that it can help the
  counties and municipalities make the funds they
  receive directly achieve the highest possible
  energy efficiency and conservation benefits.
• Go to NJs ARRA website for more information
  http//nj.gov/recovery/index.shtml