Jobs, Jobs, Green Jobs: New Tax Credits for Green Energy Manufacturing

8/17/2009

Last Thursday, the Treasury and Energy departments announced launch of the ARRA-authorized $2.3 billion tax credit for manufacturers of “advanced energy equipment.” The manufacturing tax credit (“MTC”) is equal to 30% of the investment in a “qualifying advanced energy project.” 
The MTC, also referred to as Section 48C of the Internal Revenue Code, defines “qualifying advanced energy project” as a project which re-equips, expands, or establishes a manufacturing facility producing:

      Property designed to be used to produce energy from the sun, wind, geothermal deposits (within the meaning of § 613(e)(2)), or other renewable resources 
      Fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric motor vehicles 
      Electric grids to support the transmission of intermittent sources of renewable energy, including storage of such energy 
      Property designed to capture and sequester carbon dioxide emissions
      Property designed to refine or blend renewable fuels or to produce energy conservation technologies (including energy-conserving lighting technologies and smart grid technologies)
      New qualified plug-in electric drive motor vehicles (as defined by section 30D), qualified plug-in electric vehicles (as defined by section 30(d)), or components which are designed specifically for use with such vehicles, including electric motors, generators, and power control units 
      Other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary
The program funding is capped at $2.3 billion. DOE and Treasury have established a protocol to sort among the applications expected to compete for the limited funds.  Pay careful attention to this text from DOE:

The Department of Energy (DOE) and the Internal Revenue Service (IRS) will review and make determinations on the eligibility and merit of MTC applications.  Applicants will receive tax credits based on the expected commercial viability of their project and the ranking of their project relative to other projects.  Rankings will be based on: expected job creation, reduction of air pollutants and greenhouse gas emissions, technological innovation, and ability to have the project up and running quickly.  Technology, geographic & project size diversity, and regional economic development will also be considered when rating projects.

And this text from the IRS:

The Service will consider a project under the qualifying advanced energy project program only if the U.S. Department of Energy (DOE) provides a recommendation and ranking for the project (DOE recommendation).  DOE will provide a recommendation and ranking only if it determines that the project has a reasonable expectation of commercial viability and merits a recommendation based on the criteria in § 48C(d)(3)(B).
 
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The DOE recommendations will include a ranking of projects in descending order (that is, first, second, third, etc.).  The project receiving the highest ranking (that is, first) will be allocated the full amount of credit requested before any credit is allocated to a lower-ranked project.  The amount of credit allocated to a project reduces the amount of credit available to lower-ranked projects.  The same process will apply to the second and lower-ranked projects until the amount available for allocation is exhausted.  DOE will recommend and rank projects only to the extent necessary to exhaust the amount available for allocation. 
 
To a degree not matched by most other DOE ARRA programs, the MTC program seems to demand from applicants the ability to prepare a very sophisticated, credible forecast of jobs and other economic benefits to be created by the project for which the MTC is sought.  And the time available to frame that assertion is limited.  The application period opened last Friday, August 14th.  Preliminary applications are due to DOE on September 16, 2009, and final applications are due a month later, on October 16th.  Guidance from DOE indicates that by January 15, 2010, the IRS will certify or reject applications, and certified projects will be notified of the approved amount of their tax credit.  Awardees will receive acceptance agreements from the IRS by April 16, 2010.  The application form is here.