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United States

United States: Manufacturing credit tax breaks

Manufacturers of equipment used to generate and supply green energy are to be offered tax breaks under policy details released by the US Government.

The details, announced last month by the US Department of Energy (DOE) and the US Department of the Treasury, are tied to a program connected to the Obama administration's stimulus package for the troubled US economy.

The program provides a 30% investment tax credit for qualifying makers of equipment that supports wind energy and transmission, along with a host of other technologies related to renewable energy.

Big investment

The manufacturers' program is expected to attract billions of dollars of investment into the supply chain. "It's not just for the final product," says Elizabeth Salerno, director of industry data at the American Wind Energy Association (AWEA). "It includes all of the components that go into the final product, even if it's just a flange or a bearing or a bolt. Those are critical pieces of the product that reduces emissions."

A first round of applications closes on October 16 with award announcements coming by January 15, 2010. The competitive process includes several steps and involves more than 70 pages of guidelines that will result in a ranking of applicants by the DOE. Applicants will be asked to calculate what percentage their product plays in the finished piece of equipment. "Even though the process is long, it seems clear," says Salerno. "They tried to provide as much detail as possible with examples."

The tax credits will be awarded according to DOE rankings until the money runs out, making the program different from the grant program associated with the stimulus package. Salerno says: "With the grant program, as long as you apply and complete the application accurately, you get the money. With these tax credits, you complete the application and then you still have to be ranked. The grant program was the big program. But this is a welcome addition, an added incentive."

Better with RES

Salerno says AWEA expects a positive response from manufacturers but believes the program would be better served if the government would move to a national renewable energy standard (RES), rather than continue with a market based on the existing federal production tax credit - a program that offers tax breaks for renewables developers and which has been phased in and out depending on whether Congress voted to maintain it in any given cycle. It is now set to lapse in 2012. "If you don't have a stable market, sure, a manufacturer can take a 30% tax credit," Salerno says. "But they still have to make an investment of the other 70%. And how do you justify that to your shareholders if it's unknown what the market looks like after 2012?"

An RES is included in an energy bill moving through Congress but many analysts in the green energy field consider it to be insufficiently strong, and passage of the entire package is expected to be a major challenge.

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