The Department of Treasury last week released guidance and application information on the Qualifying Advanced Energy Project Credit (”Advanced Energy Tax Credits”) available to manufacturers of certain clean technologies.  The American Recovery and Reinvestment Act of 2009 (”Recovery Act”) allocated $2.3 billion in Advanced Energy Tax Credits.  The purpose of the program is to encourage taxpayers to re-equip, expand, or establish manufacturing facilities for the production of certain advanced energy related property.Applicants seeking to receive the Advanced Energy Tax Credits are required to submit (1) a preliminary application and final application for recommendation to the Department of Energy (”DOE”); and (2) an application for certification of the project by the Internal Revenue Service (”Service”).  The pre-application deadline to the DOE for the 2009-2010 solicitation is September 16, 2009 and final applications must be received by October 16, 2009.  Application to the Service must be received by December 17, 2009.  The Service will allocate available funds to projects in based upon DOE project rankings.  If funds are not exhausted in the initial solicitation round, an additional solicitation round will be conducted for the 2010-2011 period.The Advanced Energy Tax Credits would function similar to the Investment Tax Credit utilized in renewable energy projects, equal to a tax credit of 30 percent of the basis of qualified investment once the project is placed into service.  The credit allocation is limited, however, to $2.3 billion and whether an applicant will receive credits will depend upon the results of the competitive solicitation process and Service certification.  Following certification, the taxpayer will have three years to place the qualifying project into service, or the certification is no longer valid.

Projects Must Re-Equip, Expand, or Establish a Manufacturing Facility for Eligible Advanced Energy Property

The Advanced Energy Tax Credits are available for facilities that will manufacture, re-equip, or expand production of specified advanced energy property.  Property that, after further manufacture, will become specified energy property (for example, wind turbine blades) is also eligible. Under the Treasury Guidance, advanced energy property is defined to include: (1) property designed for use in the production of energy from renewable resources; (2) fuel cells, microturbines, or an energy storage system of use with electric or hybrid-electric motor vehicles; (3) electric grids to support the transmission of intermittent sources of renewable energy, including property for the storage of such energy; (4) property designed to capture and sequester carbon dioxide and sequester carbon dioxide of emissions; (5) property designed to refine or blend renewable fuels, but not fossil fuels, or to produce energy conservation technologies; (6) new plug-in electric drive motor vehicles, qualified plug-in electric vehicles, or components designed for use with such vehicles; and (7) other property designed to reduce greenhouse gas emissions.  The project must not produce any property that is used in the blending or refining of transportation fuels other than renewable fuels.

Advanced Energy Tax Credits will not be allocated to a project with respect to any qualified investment for which a credit is allowed under certain existing tax incentives, including the Section 48 (the renewable energy Investment Tax Credit), 48A (Advanced Coal Project Credit), or 48B (Qualifying Gasification) credits.  Additionally, projects that receive payment under the Department of Treasury Grant Program established by Section 1603 of the Recovery Act will not qualify for the Advanced Energy Tax Credit.

Application Process Has Opened; the Initial Deadline to DOE is September 16, 2009

DOE will provide to the Service a recommendation and a ranking for projects if it determines the advanced energy manufacturing project has a reasonable expectation of commercial viability and merits a recommendation based on evaluation criteria.  In reviewing applications, DOE will equally weigh the following four criteria: (1) domestic job creation during the credit period (February 17, 2009 through February 17, 2014); (2) net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases; (3) greatest potential for technological innovation and commercial deployment; and (4) shortest project time from certification to completion.  The applicant must also calculate the incremental energy produced, saved, or stored due to the project.  DOE anticipates the completion of merit reviews by December 16, 2009.

Applicants must also apply to the Service for project certification before December 17, 2009.  The Service will allocate the amount of qualifying advanced energy project credit at the time the Service accepts the application for certification.  The DOE will rank projects in descending order, and the Service will allocate the full amount of Advanced Energy Tax Credit to the project receiving the highest ranking before lower-ranked projects are allocated any credits.  The same process will apply to the second and lower-ranked projects until the amount available for allocation is exhausted.  For the 2009-2010 application round, the Service will accept or reject the taxpayer’s application by January 15, 2010, and will notify the taxpayer by letter of its decision.  The acceptance letter will state the amount of the credit allocated to the project and the taxpayer will have three years to place the certified project into service or the certification will become void.

Projects that are accepted by the Service will be required to enter into an agreement and agree to provide additional information to the Service, including milestones to project completion.  Accepted projects have one year to submit supplemental information to establish that the project will be completed within three years from the receipt of the certification letter.  Within one year, accepted projects must receive all federal, state, and local permits, including environmental reviews.  In addition, the taxpayer must demonstrate has completed steps necessary in that period to place the project in service before the three-year anniversary of the certification.  Recapture rules apply to the Qualified Energy Tax Credit.

For further information about this topic, please contact Akin Gump.