When President Bush signed into law the $700 billion Emergency Economic Stabilization Act of 2008 on October 3, it also extended and enhanced critical tax credits and financing relating to renewable energy and energy efficiency.
The Energy Improvement and Extension Act of 2008, which was attached to H.R. 1424, provides a one-year extension of the production tax credit (PTC) for wind energy, keeping the credit in effect through 2009. The bill also provides a two-year PTC extension, through 2010, for electricity produced from geothermal, biomass, and solar power facilities, as well as trash-to-energy facilities, small hydropower projects and capacity additions to existing hydropower plants. In addition, the bill creates a new PTC for electricity produced by marine and hydrokinetic renewable energy systems.
Capital constrains limit borrowing power of the developers, but with the benefit of the tax credit third party investors provide the equity capital in exchange for the tax credits. The tax credits provide the owners or lessees of these facilities with dollar-for-dollar reductions of tax liability. This partnership creates a joint ownership, or LLC, of the energy production facilities that share in the economic and tax benefits from the transaction.
With each transaction, the amount of capital generated by the tax credits is highly variable. Investors incorporate some or all of the following into their tax equity pricing decisions- amount and timing of tax credits, depreciation deductions, operating cash flow, residual value, risk/volatility, changes in ownership, accounting implications, and tax risk.
The United States is blessed by an abundance of renewable energy resources from the sun, wind, and earth. Combined, the technical potential of major renewable technologies could provide more than five times the electricity this country needs, while generating tax credits.