The American Reinvestment and Recovery Act of 2009 (ARRA) authorizes the Department of Treasury to award $2.3 billion in tax credits for qualified investments in advanced energy projects, to support new, expanded or re-equipped domestic manufacturing facilities.
This $2.3 billion will be distributed with a new tax credit program that provides an investment tax credit of 30 percent of qualified investment for manufacturers of particular types of energy equipment. The goal of Section 48C is to grow the domestic manufacturing industry for clean energy, thereby supporting the larger goals of ARRA of stimulating economic growth, creating jobs and reducing greenhouse gas emissions.
It is estimated that these credits will support total capital investments of almost $7.7 billion in new, renewable and advanced energy-manufacturing projects. But time is running out on this opportunity. Preliminary applications must be filed by Sept. 16, 2009.
ARRA requires the Secretary of Treasury to work in consultation with the Secretary of Energy to decide what business projects qualify for the credit. This tax credit can apply to manufacturing facilities that support generation and conservation (not energy generation projects themselves). These manufacturers include:
The Department of Energy (DOE) and the Internal Revenue Service (IRS) will review and make determinations on the eligibility and merit of Section 48C applications. Applicants will receive tax credits based on the expected commercial viability of the project and its ranking 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. Geographic and project-size diversity, technology and regional economic development will also be considered when rating projects.
Limited window of opportunity
The application period opened Aug. 14, and hundreds of businesses are expected to apply. The application process is as follows:
Credits will be allocated until the program funding ($2.3 billion) is exhausted. Subsequent allocation periods will depend on remaining funds.
Section 48C represents a great opportunity for both large companies that can readily utilize the tax credits to offset current tax liability and small companies that can monetize the credit to raise seed capital for their projects.
Michael Bernier is a member of Ernst & Young LLP’s Tax Credit Investment Advisory Services practice, with a focus in renewable energy.