A project has numerous tax credits and incentives including Section 45 – Electrical Production;

Section 199 Deductions and Renewable Energy Credits.

The Internal Revenue Code Section 45(a) provides a renewable electricity production credit for a taxable year of 1.0 cent (adjusted for inflation) for each kilowatt hour of electricity that the taxpayer: (1) produces from qualified energy resources at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service; and (2) sells to an unrelated person during the taxable year.

The IRS Code Section 199 was established by the American Jobs Creation Act of 2004 which included the Domestic Production Activities Deduction, also known as the “Producer Deduction.” The Producer Deduction is a business tax deduction based on income attributable to certain manufacturing and production activities conducted in the U.S.

Renewable Energy Credits (RECs), also known as “Green Tags” or “Tradable Renewable Certificates” (TRCs), are
the rights to the environmental benefits from generating electricity from renewable energy sources. These certificates
can be sold and traded. While traditional carbon emissions trading programs promote low-carbon technologies by increasing the cost of emitting carbon, RECs incentivize carbon-neutral renewable energy by providing a subsidy to electricity generated from renewable sources. In states which have a REC program, a “green” energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh of electricity it produces.

ARRA -AMERICAN RECOVERY AND REINVESTMENT ACT
HRE’s plant qualifies for the Grant in Lieu of Tax Credit program resulting from the ARRA Bill of 2009. The grants would function similar to refundable tax credits. The amount of a grant generally would be equal to the amount of the ITC for which the owner of the project otherwise would have been eligible (i.e., generally 30% of the qualified cost of the project). Receipt of the grant would not be includible in the gross income of the taxpayer. The tax basis of the property for depreciation purposes generally would be reduced by one-half of the amount of the grant (i.e., the tax basis for depreciation generally would equal 85% of the qualifying costs of the property).

The U.S. Treasury would be required to pay a grant to a project owner within 60 days of the later of the date of application for the grant or the date on which the applicable property is placed in service. An applicant would not qualify for a grant unless its application is received by September 30, 2011 and construction has been initiated.