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There are multiple U.S. tax incentives for investing in renewable energy, including the investment tax credit for renewable energy (Internal Revenue Code section 48) and the renewable electricity production credit (IRC section 45A). 47 Under the former, investments in solar energy property, fuel cells, and small wind systems may receive a 30 percent tax credit, while investments in geothermal systems, microturbines, and combined heat and power technologies (which simultaneously produce electricity and heat from a single fuel source) may qualify for a 10 percent tax credit.48 The latter credit includes the most effective federal incentive for wind power, a per-kWh credit applied to the output of qualifying facilities during the first 10 years of their operation. Total 2011 tax expenditures for the investment tax credit were an estimated $300 million, while the production tax credit resulted in an estimated $1.4 billion of foregone revenue in 2011.49 There are also tax incentives at the state level; for example, North Carolina has tax incentives for manufacturing renewable energy equipment and for investing in renewable energy property.50 (Federal and state tax incentives apply to fossil fuel industries as well, so tax codes may not provide a net benefit to renewable energy relative to other energy sources.)51 Governments also provide various forms of direct public financing that facilitates the use of renewable energy. As part of the U.S. American Recovery and Reinvestment Act, Congress established a temporary grant program (the “1603 Program”) that entitled project developers to receive a cash payment worth 30 percent of a project’s capital cost. The 1603 Program awarded $11.6 billion to 38,000 projects before expiring at the end of 2011.52 The Department of Energy also plays a major role in providing loan guarantees for projects that use new (or significantly improved) clean energy technologies, and as of September 2011 had made $15.1 billion in loan guarantees. 53 For example, SolarReserve’s 110-MW Crescent Dunes CSP project in Nevada is backed by a $737 million loan guarantee. The guarantee, combined with a 25-year power purchase agreement with NV Energy, provides a long-term financial and policy framework that has helped facilitate a large investment in a new technology (molten salt storage).54 However, the Department of Energy generated some controversy when it provided over $500 million in loan guarantees to the solar company Solyndra, which later went bankrupt in part due to the falling price of silicon panels. It has been argued that some defaults are to be expected to the extent that such loan programs invest in unproven technologies (by one estimate, 30–40 percent of high-potential U.S. start-ups fail).55 47 There is also a deduction for energy-efficient commercial buildings (IRC section 179D), an energy- efficient appliance credit (IRC section 45MA), and an energy-efficient home credit (IRC section 45LA), as well as a nonbusiness energy property tax credit (IRC section 25C) and a residential energy-efficient property tax credit (IRC section 25D) for improvements that affect energy efficiency of dwellings. Bourgeois et al., “Tax Incentives of Going Green,” November 2010. 48 Sherlock, “Impact of Tax Policies,” April 19, 2012, 2. Typically such credits apply to the eligible basis of energy property placed in service during the taxable years. 49 Sherlock, “Impact of Tax Policies,” April 19, 2012, 3. 50 Cosmo, “States Provide Tax Incentives,” September–October 2011. 51 Environmental Law Institute, “Estimating U.S. Government Subsidies to Energy Sources,” September 2009. Significant federal tax preferences for fossil fuel industries include the expensing of exploration and development costs, as well as the “excess of percentage over cost depletion” deduction, which allows oil, gas, and coal producers to deduct a percentage of gross income from production instead of recovering the cost of investments based on the fraction of resources extracted. This deduction is typically more favorable than the standard depreciation deduction. 52 Mendelsohn and Harper, “§1603 Treasury Grant Expiration,” June 2012, iii. 53 GAO, DOE Loan Guarantees, March 2012. 54 Industry representatives, interview by USITC staff, Madrid, Spain, May 10, 2013. The loan guarantee will result in an estimated $300 million in interest payments to the U.S. government. Trabish, “SolarReserve’s CEO Weighs In on CSP,” August 27, 2012. 55 Gage, “The Venture Capital Secret,” September 19, 2012. 6-10PDF Image | Renewable Energy and Related Services: Recent Developments
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