Section 48C Big Opportunity for Advanced Energy Manufacturers

September 10, 2009

Michael Bernier
Ernst & Young LLP

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The American Reinvestment and Recovery Act of 2009 (ARRA) authorizes the Department of Treasury to award $2.3 billion in tax credits for qualified investments in advanced energy projects, to support new, expanded or re-equipped domestic manufacturing facilities.

This $2.3 billion will be distributed with a new tax credit program that provides an investment tax credit of 30 percent of qualified investment for manufacturers of particular types of energy equipment. The goal of Section 48C is to grow the domestic manufacturing industry for clean energy, thereby supporting the larger goals of ARRA of stimulating economic growth, creating jobs and reducing greenhouse gas emissions.

It is estimated that these credits will support total capital investments of almost $7.7 billion in new, renewable and advanced energy-manufacturing projects. But time is running out on this opportunity. Preliminary applications must be filed by Sept. 16, 2009.

ARRA requires the Secretary of Treasury to work in consultation with the Secretary of Energy to decide what business projects qualify for the credit. This tax credit can apply to manufacturing facilities that support generation and conservation (not energy generation projects themselves). These manufacturers include:

Technologies that create energy from renewable resources (sun, wind, geothermal and other renewable resources)
Energy storage technologies (fuel cells, microturbines and other energy storage systems used in electric vehicles)
Advanced transmission technologies that support renewable generation (including storage)
Renewable fuel-refining or blending technologies
Energy conservation technologies (advanced lighting, smart grid)
Plug-in electric vehicles and vehicle components (motors, generators)
Property to capture and sequester carbon dioxide
Other property designed to reduce greenhouse gas emissions

The Department of Energy (DOE) and the Internal Revenue Service (IRS) will review and make determinations on the eligibility and merit of Section 48C applications. Applicants will receive tax credits based on the expected commercial viability of the project and its ranking relative to other projects.

Rankings will be based on: expected job creation; reduction of air pollutants and greenhouse gas emissions; technological innovation; and ability to have the project up and running quickly. Geographic and project-size diversity, technology and regional economic development will also be considered when rating projects.

Limited window of opportunity

The application period opened Aug. 14, and hundreds of businesses are expected to apply. The application process is as follows:

Sept. 16, 2009 — Preliminary applications due to DOE
Oct. 16, 2009 — Final applications due to DOE and IRS
Dec. 16, 2009 — DOE ranking recommendations sent to IRS
Jan. 15, 2010 — Date by which applications are accepted or denied and awardees have been informed of the amount of allowable tax credits
March 15, 2010 — Awardees must execute agreement with IRS
April 16, 2010 — Date by which awardees receive acceptance agreements from IRS

Credits will be allocated until the program funding ($2.3 billion) is exhausted. Subsequent allocation periods will depend on remaining funds.

Section 48C represents a great opportunity for both large companies that can readily utilize the tax credits to offset current tax liability and small companies that can monetize the credit to raise seed capital for their projects.

Michael Bernier is a member of Ernst & Young LLP’s Tax Credit Investment Advisory Services practice, with a focus in renewable energy.

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