United States (Federal)

US-12:Business Energy Investment Tax Credit (ITC)

Policy Description

The Business Energy Investment Tax Credit (ITC) is an incentive for the deployment of renewable energy technologies and CHP. The ITC reduces federal income taxes for qualified tax-paying owners based on capital investments placed in service before December 31, 2016.

Description

The Business Energy Investment Tax Credit (ITC) is an incentive for the development and deployment of renewable energy technologies and CHP [1]. The ITC reduces federal income taxes for qualified tax-paying owners based on capital investments placed in service after October 3, 2008 and before December 31, 2016. The ITC is earned when the equipment is placed into service.

The ITC was expanded significantly by the Energy Improvement and Extension Act of 2008, enacted in October 2008. Under the scheme investors are allowed to take the credit against the alternative minimum tax (AMT), subject to certain limitations.

Cash grant
In addition, between 2009 and 2011 a cash grant was an option for ITC-eligible projects to receive the value of the ITC as a direct grant instead of as a tax credit. Eligible technologies could receive a cash grant covering up to 30% of the capital investment for solar, fuel cells and small wind projects, and up to 10% for geothermal, microturbines and CHP. The cash grant provision expired on December 31, 2011.
 
Eligibility
Solar energy (*1), fuel cells (*2), microturbines(*3) small wind-energy systems (*4), geothermal heat pumps (*5), and combined heat and power (CHP) systems (*7) [2].

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2008

End Date: 2016

Policy Linkages

Supported By Save Energy Now LEADER (replaced by US-4b Better Buildings, Better Plants Program) Effort Defining
Supported By Energy Star for Industry Program Effort Defining

Agencies Responsible

Department of Treasury

Primary Objective: Energy

Objective

Encourage investment and growth in certain renewable energy and energy efficiency technologies.

Target Group

Industry, commercial, utilities, and agriculture

Driver of energy consumption or emissions affected by policy: Technology implementation rate

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

Industry and other sectors

Quantitative Target? no

Time Period: N/A

Progress Monitored? no

Verification Required? yes

Enforced? no

Requirements on the Target Group

The following are basic guidelines for claiming the ITC [3]:

  • System owner must be a tax-paying entity.
  • Equipment must be new, though used equipment can potentially be treated as new depending on the amount of upgrades after the purchase.
  • System must be placed in service between December 31, 2005 and December 31, 2016.
  • Production Tax Credit (PTC)-eligible projects can elect to receive the ITC instead of the PTC.
  • While the original ITC excluded publicly owned electric utilities, those can now benefit from the ITC as of 2008. Investor owned utilities remain eligible.
  • Follow instructions in IRS Form 3468 [4]

Support by Government

Tax credits for eligible systems placed in service on or before December 31, 2016.

Implementation Toolbox

The main implementation tool of the Business Energy Investment Tax Credit policy is the Internal Revenue Service (IRS) Form 3468 that has to be completed in order to obtain the tax credit. The form is published on website http://www.irs.gov/uac/Form-3468,-Investment-Credit-2

Complexity of Implementation

Government

Fixed rules, releatively easy to check compliance.

Target Group

Fixed rules, releatively easy to check eligibility and via standard forms request financial incentive.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions Not Available Not Available
Estimated costs/benefits for industry Not Available Not Available
Estimated cost for government Not Available Not Available

References & Footnotes

References

[1] Goodward J., Gonzalez M. (2010). World Resource Institute, Bottom Line on Renewable Energy Tax Credits, Oct 2010: http://www.wri.org/publication/bottom-line-series-renewable-energy-tax-credits

[2] The federal business energy investment tax credit: 26 USC § 48. http://www.dsireusa.org/documents/Incentives/US02F.htm

[3] Goodward J., Gonzalez M. (2010). World Resource Institute, Bottom Line on Renewable Energy Tax Credits, Oct 2010: http://www.wri.org/publication/bottom-line-series-renewable-energy-tax-credits

[4] Internal Revenue Service, Form 3468, Investment Credit. http://www.irs.gov/pub/irs-pdf/i3468.pdf

Footnotes

(*1) Eligible solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible. Passive solar systems and solar pool-heating systems are not eligible.

(*2) Eligible property includes fuel cells with a minimum capacity of 0.5 kW that have an electricity-only generation efficiency of 30% or higher.

(*3) Eligible property includes microturbines up to two megawatts (MW) in capacity that have an electricity-only generation efficiency of 26% or higher.

(*4) Eligible small wind property includes wind turbines up to 100 kW in capacity

(*5) Eligible geothermal energy property includes geothermal heat pumps and equipment used to produce, distribute or use energy derived from a geothermal deposit. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electric transmission stage. For geothermal heat pumps, this credit applies to eligible property placed in service after October 3, 2008. Note that the credit for geothermal property, with the exception of geothermal heat pumps, has no stated expiration date.

(*6) Eligible CHP units must be up to 50 MW in capacity and exceeding 60% energy efficiency, subject to certain limitations and reductions for large systems. The efficiency requirement does not apply to CHP systems that use biomass for at least 90% of the system's energy source, but the credit may be reduced for less-efficient systems. The American Recovery and Reinvestment Act of 2009, allows CHP fired with biomass to qualify for a 30% tax credit through Dec. 31, 2013.

(*7) No verification on the resulting EE improvements or GHG reductions but obviously verifications on the spending.