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Congress Expands Renewable Production Tax
Credit to “Open Loop” Biomass, Geothermal, Municipal
Solid Waste, Landfill Gas, Solar and Irrigation Power
By Daniel M. Adamson, Craig Gannett and Ryan L. Flynn
[Oct. 2004]
On October 11, 2004, the Senate passed H.R. 4520,
the American Jobs Creation Act of 2004, which includes a significant
expansion of the production tax credit for electricity produced
by certain renewable resources. An identical version of the
bill was previously passed by the House of Representatives.
The President is expected to sign the bill into law. The energy
provisions of H.R. 4520 constitute perhaps the most significant
Congressional action on energy legislation since passage of
the Energy Policy Act of 1992.
Under current law, only wind and “closed
loop” biomass (dedicated energy crops) and poultry waste
power generation are eligible for the renewable energy production
tax credit. The new legislation provides that qualified resources
and facilities are expanded to include, open-loop biomass (including
agricultural livestock waste), geothermal, solar, small irrigation
power, municipal solid waste (including landfill gas facilities
and trash combustion facilities) and “refined coal.”
In general, the available credit remains 1.5 cents
per kilowatt-hour (1.8 cents per kilowatt-hour for 2004 as adjusted
for inflation). Refined coal and associated production facilities
shall receive a credit of $4.375 per ton.
Qualified Facilities
- Qualifying geothermal, solar, small irrigation power, landfill
gas, and trash combustion facilities shall be placed in service
after the date of enactment and before Jan. 1, 2006 to be
eligible for the production tax credit. Where geothermal and
solar facilities claim credits pursuant to section 45, such
facilities shall not also claim credits pursuant to section
48.
- Qualified wind, closed-loop biomass and poultry waste facilities
retain their existing “in service” dates as before
Jan. 1, 2006 for credit eligibility. For wind, such facilities
shall be placed in service after
Dec. 31, 1993 and before Jan. 1, 2006. For closed-loop biomass,
such facilities shall be placed in service after Dec. 31,
1992 and before Jan. 1, 2006. For poultry waste facilities,
such facilities shall be placed in service after Dec. 31,
1999 and before Jan. 1, 2006.
- For certain qualified closed-loop biomass facilities modified
to co-fire with coal and/or biomass, the
10-year period for credit eligibility shall begin on the date
of enactment.
- Qualified open-loop facilities using livestock waste shall
be placed in service after the date of enactment and prior
to Jan. 1, 2006 for credit eligibility. For all other qualified
open-loop biomass facilities, credit eligibility begins when
facilities are placed in service before Jan. 1, 2006. For
existing open-loop biomass facilities placed in service prior
to Jan. 1, 2005, the credit provisions shall be effective
for electricity produced and sold after Dec. 31, 2004.
- For refined coal production facilities, eligibility contemplates
facilities placed in service after the date of enactment and
before Jan. 1, 2009. Refined coal is a liquid, gaseous, or
solid synthetic fuel produced from certain types of coal.
Among other qualifying criteria, the coal must be sold by
the taxpayer with the “reasonable expectation”
that it will be used for the primary purpose of producing
steam, and shall reduce nitrogen oxide and sulfur dioxide
or mercury emissions by 20 percent as compared to emissions
released when burning feedstock coal.
Available Tax Credits
The legislation provides a continued tax credit
of 1.5 cents per kilowatt-hour of electricity
production (1.8 cents for 2004 as adjusted for inflation).
For open-loop biomass, small irrigation, landfill gas, and trash
combustion facilities the allowable credit amount is reduced
by one-half to 0.75 cents (0.9 cents
per kilowatt-hour as adjusted for inflation) per kilowatt-hour.
For qualified open-loop biomass (including agricultural livestock
waste), geothermal, solar, small irrigation power, landfill
gas, and trash combustion facilities, the 10-year credit period
is reduced to 5-years upon date of placement into service.
Refined coal production facilities are also eligible
for certain credits. A qualified refined coal production facility
may claim a credit rate of $4.375 per ton of
refined coal sold to unrelated persons. The total credit claimed
by such refined coal facilities may be phased out as market
prices dictate.
Outlook
For most new renewable generation, the window
of opportunity for taking advantage of the new tax credits is
narrow. In particular, developers of new open-loop biomass,
landfill gas, trash combustion, geothermal, small irrigation
power and solar generation must have their projects in service
after the date of enactment and before Jan. 1, 2006. Therefore,
only projects which can be permitted and constructed quickly
will be able to obtain the benefit of the new tax credits.
For more information, please contact:
This Energy Advisory is a publication
of the Energy Department of Davis Wright Tremaine LLP. Our purpose
in publishing this Advisory is to inform our clients and friends
of recent developments in energy law. It is not intended, nor
should it be used, as a substitute for specific legal advice
as legal counsel may be given only in response to inquiries
regarding particular situations.
Copyright © 2004, Davis Wright
Tremaine LLP.
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