September 15, 2015

Last year, a Gallup poll found “sixty-four percent of Americans prefer an emphasis on the development of alternative energy production” including renewable and low emissions technologies, compared to traditional fossil fuels.[1]  While most people are interested in alternative energy technologies that are clean, safe, reliable, fewer people are interested in energy tax policy.  However, without swift action from Congress on the latter, the former may not be available, and American consumers and workers will pay the price.

Unless Congress acts quickly, the Business Energy Investment Tax Credit (ITC) to help support capital investment in alternative energy systems will disappear at the end of 2015.  The Fuel Cell and Hydrogen Energy Association (FCHEA) urges Congress to extend this important tax provision for five years.

Fuel cells are clean, efficient, resilient technologies that have moved from demonstration to commercially available products, with thousands of stationary fuel cells installed around the country providing reliable and efficient power to data centers, utilities, warehouses, businesses, and homes.  

The ITC allows fuel cell developers and companies to grow in the U.S. and export domestically manufactured products overseas.  In addition, the ITC helps deploy other alternative energy technologies - including solar, microturbines, combined heat and power (CHP) systems, and geothermal heat pumps - that are gaining a market foothold, creating homegrown American jobs, and making it easier for commercial, governmental, institutional and private customers eager to adopt cleaner power systems.

ITC Background

Fuel cell products were added to the ITC with the passage of the Energy Policy Act of 2005 (EPACT05).  

In 2008, the ITC was expanded significantly by the Energy Improvement and Extension Act, which extended the existing credits for fuel cells, solar energy cells, and microturbines by eight years, increased the credit amount for fuel cells, established new credits for small wind-energy systems, geothermal heat pumps, and CHP systems, allowed utilities to use the credits, and allowed taxpayers to take the credit against the alternative minimum tax (AMT), subject to certain limitations.  

The credit was temporarily modified by the American Recovery and Reinvestment Act (ARRA) of 2009, allowing entities to take the credit in the form of grants if they did not qualify for a tax credit.

Seeking Equity with the PTC

Another tax credit program for alternative energy projects, the Production Tax Credit (PTC), provides credits “for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year.”[2]  Fuel cell systems are not eligible for the PTC unless they generate electricity that can be supplied to the grid.  However, one characteristic of the PTC should be extended to the ITC in the name of parity.

Specifically, the PTC enables alternative fuel projects to qualify for the tax credit once "physical work of a significant nature" begins, rather than when the unit is “placed in service,” which is the standard under the ITC.  Using this “commence construction” standard means projects are able to qualify more quickly under the PTC than for the ITC.

Due to the long lead times required to implement energy projects (often a year or more) ITC projects must begin construction well in advance of tax credit’s expiration date.  The “placed in service” requirement coupled with the lead-time for installation of new energy projects places an unfair burden on ITC projects and means that the ITC will effectively expire before 2016. 

FCHEA seeks ITC/PTC equity.  In fairness to the America’s fuel cell customers and providers, and those of other alternative energy systems, a renewed ITC should include the “commence construction” rule.

High Stakes for America - Energy Independence, Security and Technology Leadership

Fuel cells, CHP, solar, geothermal, and microturbines harness a broad range of domestic energy resources, from fossil fuels to renewables.  While these alternative energy technologies help reduce greenhouse gases and other emissions and protect the environment, they also strengthen energy independence and security, by increasing energy efficiency and reducing reliance on foreign fossil fuels.  These technologies offer consumers choice in their power sources, and enhance the resilience and reliability of the U.S. power grid.  Moreover, in today’s global marketplace, the development of alternative energy technology drives U.S. innovation, businesses, economic activity, manufacturing, national security, and jobs.

The bottom line is clear - to avoid serious market disruption and provide for short- to mid-term planning for America’s emerging alternative energy industries and their customers, the ITC should be extended for a minimum of five years.  The ITC should also be modified to allow for the PTC’s “commence construction” standard to be applied.


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