858.367.7676

Investment Tax Credits Available to Manufacturers of Advanced Energy Equipment

 

September 11, 2009
By Phillip L. Jelsma

On August 13, 2009 the Treasury Department and Energy Department announced a $2.3 billion of investment tax credits for manufacturers who produce clean energy equipment. The new 30% investment tax credit is available for qualified investments in advanced energy manufacturing projects. Since there are $2.3 billion of credits available, the Energy Department will fund $7.7 billion of projects. In general, the credits are available for manufacturing projects which:

  1. Create energy from renewable sources (wind, sun, geothermal, and other renewable sources);
  2. Energy storage technologies, such as fuel cells, microturbines, or other energy storage systems used in electric vehicles;
  3. Advanced transmission technologies that support renewable generation (including storage);
  4. Renewable fuel refining and blending technologies;
  5. Energy conservation technologies, such as advanced lighting and smart grids;
  6. Plug-in electric vehicles and vehicle components, such as motors and generators;
  7. Property to capture and sequester carbon dioxide; and
  8. Any other property designed to reduce greenhouse gas emissions.

Credits are available for projects that re-equip, expand or establish a manufacturing facility for any of these items. A manufacturing facility is one that makes or processes raw materials into finished products. It includes immediate stages in the process and includes production of components, such a blades for wind turbines. However, it does not include solar energy products that use manufactured equipment.

Credits are available for eligible property that is necessary for the production of specified advanced energy property, is tangible personal property or is other tangible property that is used as an integral part of the qualifying advanced energy project. It does not include buildings or structural components.

The application period began August 14, 2009 and preliminary applications are due to the Department of Energy by September 16, 2009. Final applications are due on or before October 16, 2009.

By January 15, 2010, the IRS will either accept or reject the applications.

Awardees will receive acceptance agreements by April 16, 2010 and credits will be allocated until the program funding is exhausted.

Projects must be completed within 4 years of the date of acceptance and placed in service within 3 years from the issuance of IRS certification.

Applications that are incomplete will be returned and there are no conference or appeal rights. Applications are available on the Department of Energy website (www.energy.gov/recovery).

The preliminary applications must include the following information:

  1. Company name, city and state.
  2. The qualifying investment amounts and credits invested.
  3. A narrative of the project, including (a) a summary of the project; (b) a description of the qualifying advance energy equipment; (c) the current project status and progress to date; (d) project scheduling milestones; and (e) any other information. However, the application is not to exceed 300 words. The submissions do not have to have final numbers, but the DOE would “appreciate” numbers that are within 10% of final numbers.

The final applications are due to the DOE by October 16, 2009 on the form of a project information memorandum, which cannot exceed 30 pages. It must include an outline, executive summary introduction, demonstration of eligibility, evaluation criteria, applicant data, input spreadsheet and supporting documents. The taxpayer must also apply for certification from the IRS. The IRS will accept or reject the application for certification by January 15, 2010. The taxpayer has one year from the acceptance date to provide evidence that the requirements of certification have been met. In particular, the taxpayer must establish:

  1. It received all federal, state and local permits, including environmental authorizations to commence construction of the project.
  2. The taxpayer has completed all steps that must be accomplished within the one-year period if the project is to be placed in service before the end of the 3-year period beginning on the date of certification issuance, which is the one-year anniversary of the acceptance date. If the IRS certifies the project, the taxpayer then has 3 years from the date of the issuance of the certification in order to place the project in service.

The taxpayer must inform the IRS if the plans for the project change in any significant respect. A significant change is a change that a reasonable person must conclude might have influenced the DOE or IRS in accepting the project. If the IRS is informed of the change after October 16, 2010, and before January 15, 2010, the IRS will not consider the project.

If a significant change is provided after January 15, 2010, the allocation or certification will be void.

The Department of Energy has provided both eligibility and evaluation criteria. The first eligibility criteria is that the property must be an advanced energy project. It must describe the advanced energy property and the project and state the percentage of the property that will be used to produce the advanced energy property. The second eligibility criteria focuses on whether there is a reasonable expectation of commercial viability. The taxpayer should submit both a detailed business plan and detailed financial plan.

There are four different evaluation criteria that would be used by the Department of Energy:

  1. The greatest domestic job creation.
  2. The greatest net impact in avoiding or reducing air pollutants or emissions of greenhouse gases.
  3. The greatest potential for technological innovation and commercial deployment.
  4. The shortest projected time from certification to completion.

To the extent that credits are not fully allocated, an additional round of allocation will be held. The IRS anticipates it will receive approximately 1,000 applications.