ITC, PTC or Grant—Which is Best for My Project?
(For thorough details on these and other green tax incentives go to: Green Tax Saver)
ITCs and PTCs are excellent ways to benefit from green tax incentives and improve your bottom line. Ultimately any business using renewable energy sources to power and heat plants and offices will need to do their own calculations to see which option is most advantageous. Some of the factors to consider are:
1. How long has the energy property been online? If the energy source has been in use since prior to 2009 then the Production Tax Credit is most likely the tax credit option of choice. The PTC has been in effect since the Energy Policy Act of 1992 was enacted, while the ITC for renewable energy sources came into effect with the Emergency Economic Stabilization Act of 2008 and was extended by the Stimulus Package of 2009. For the ITC to be claimed the energy property must have been put into production in 2009 or 2010. The ITC can also be claimed for facilities started by the end of 2010 that are placed in service by 2013.
2. How quickly the business needs cash. The Treasury Grant program is meant to provide a quick infusion of cash to increase production and jobs by providing the 10% or 30% basis of the property, depending on the type of renewable resource installed. The energy property must be placed in service in 2009 or 2010 and be claimed by October 1, 2011. Payment will be made within 60 days of application. The grant program was meant to stimulate the sagging economy in the face of poor prospects for financing plant expansions.
3. Calculation of the energy produced by the renewable source compared to the cost basis of installation, and the estimated levels of that production over a 10 year period compared to the initial start-up cost. The PTC for wind, solar, geothermal, and “closed-loop” bioenergy (using dedicated energy crops) is calculated at 2.1-cent per kilowatt-hour (kWh) for the first ten years of a renewable energy facility’s operation. Other technologies, such as “open-loop” biomass (using farm and forest wastes rather than dedicated energy crops), incremental hydropower, small irrigation systems, landfill gas, and municipal solid waste (MSW), receive a smaller tax credit of 1.0 cent per kWh. In years past the PTC has been a good incentive for greater use of renewable energy resources by business, however, with the economic turndown a more immediate incentive is the ITC where up to 30% returns more to a business faster than the PTC.
4. Unpredictability of the political and economic environment. The Union of Concerned Scientists note that between 1999 and 2004 the PTC was allowed to expire on three separate occasions. There are no guarantees that this long-term method of incentivizing the use of renewable energy will be extended past the current terms set by the Stimulus Package of 2009.[i]
For more details on these and other green tax incentives go to: Green Tax Saver
[i] “Production Tax Credit for renewable energy,” Clean Energy, by Union of Concerned Scientists (4/22/09) http://www.ucsusa.org/clean_energy/solutions/big_picture_solutions/production-tax-credit-for.html
