The financial incentives available for energy efficiency and renewable energy projects are constantly changing. For example, significant federal and state-level money stemming from the American Recovery and Reinvestment Act of 2009 is tapering off. Also, many renewable energy vendors are offering new financing models such as Power Purchase Agreement and leasing options – some of which may reduce or eliminate the upfront costs associated with installing these systems. We recommend a close analysis of available resources and consultation with a tax professional to evaluate the financial implications of this evolving financial landscape.
State Resources
Vermont Solar Rebate (Corporate) and Personal
Vermont’s business energy tax credit for solar is offered in an amount equal to 100% of the federal business energy tax credit for solar. This results in a 30% tax credit for systems and equipment that generates electricity from solar energy. There is no maximum limit to the tax credit. The tax credit cannot be taken in conjunction with the Vermont Small-Scale Renewable Energy Incentive or any Clean Energy Development funds.
Vermont’s Small-Scale Renewable Energy Incentive
Vermont's Small-Scale Renewable Energy Incentive Program, initiated in June 2003, provides funding for new solar water heating, solar electric (photovoltaic), wind, and micro-hydro energy system installations. Currently in its sixth round of funding (5.2 million dollars), the program is available to single- and multi-family residences, commercial and industrial businesses, farms, schools, builders/developers, and local & state governments. Depending on the size of the project, farms will either be categorized as residential or commercial. Incentives are as follows:
Fixed Solar Photovoltaic (PV)
Solar Hot Water
Wind
Clean Energy Development Fund Grant Program
The Clean Energy Development Fund (CEDF) Grant Program seeks to promote the development and deployment of cost-effective and environmentally sustainable electric power and thermal resources –- primarily renewable energy resources and combined heat and power (CHP) systems -- for the long-term benefit of Vermont electric customers. There are two grant solicitation periods for 2010. The first round of proposals closed March 12, 2010; a total of $2.5M in grants are to be awarded. The second request for proposal will be issued mid-year.
Funding is available to four categories of projects: pre-project financial assistance, small-scale systems (microturbines, fuel cells, and CHP), large-scale systems, community scale systems and special demonstration projects. Proposed electrical generation projects are required to be grid-connected. Thermal projects, including CHP projects, should maximize the thermal efficiency of the fuel source. There is a maximum award of $75,000 for Pre-Project Financial Assistance, $50,000 for Small-Scale Systems,* $250,000 for Large-Scale Systems and Special Demonstration Projects, and $500,000 for Community-Scale Systems. Cost-share is required for all projects
*Note: Solar electric, solar hot water, wind, and hydro systems are not eligible for funding under the small-scale systems category; incentives for those technologies are currently available under the VT Small-Scale Renewable Energy Program.
Clean Energy Development Fund (CEDF) Loan Program
The Clean Energy Development Fund (CEDF) Loan Program seeks to promote the development of clean electric-energy technologies by providing funding for purchasing land and buildings (when specific to qualifying projects), purchasing and installing machinery and equipment, and working capital. Low-interest loans with a fixed rate of 2% are available to individuals, companies, nonprofits and municipalities. Eligible clean electric-energy technologies generally include solar, wind, biomass, fuel cells and combined heat and power (CHP).
The minimum loan amount is $50,000; the maximum amount is $500,000. Loans may not be used for more than 90% of the cost of a project. All financing must be used for activities or assets directly related to the project.
The term for real estate loans is 10 years, amortized on a 15-year basis. The maximum term for machinery and equipment loans is seven years. The term for working capital loans is three years. Borrowers must pay an application fee of 1% on the loan amount, which is capped at $1,500, after the loan is approved. See the program web site or contact the Vermont Department of Public Service (DPS) for an application form.
The CEDF was established in 2005 and is funded through proceeds due under the terms of two memoranda of understanding between the DPS and Entergy, an investor-owned electric utility operating in Vermont. The CEDF will receive payments between $6 million to $7.2 million annually from Entergy through March 2012.
Vermont State Sales Tax Exemption
Vermont’s 6% sales tax exemption applies to all equipment purchased for the construction and installation of systems that generate electricity using eligible renewable energy resources up to 250 kW in capacity. It is available for both net metered, grid-tied systems, and off-grid systems.
Federal Resources
Federal Tax Credit
The federal income tax credit is for eligible residential and business renewable energy technologies including PV. A taxpayer may claim a credit of 30% of qualified expenditures of the system with no maximum credit limit. The tax credit is calculated based on total project expenditures, excluding subsidized energy financing designed to conserve or produce energy. The credit can be taken against the alternative minimum tax, subject to certain limitations. If tax liability is exceeded by the credit amount, the excess may be applied toward the following year’s tax liability. Federal tax credits cannot be taken in conjunction with any Rural Energy for America funds.
Credits are available for eligible systems placed into service on or before December 31, 2016:
Solar. The credit is equal to 30% of expenditures, with no maximum credit limit stated. 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. (Passive solar systems and solar pool-heating systems are not eligible.) Hybrid solar lighting systems are those that use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.
Small Wind Turbines. The credit is equal to 30% of expenditures, with no maximum credit limit stated.
Geothermal Systems. The credit is equal to 10% of expenditures, with no maximum credit limit stated. 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 into service after October 3, 2008.
Combined Heat and Power. The credit is equal to 10% of expenditures, with no maximum limit stated. Eligible CHP property generally includes systems up to 50 MW in capacity that exceeds 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. This credit applies to eligible property placed into service after October 3, 2008.
In general, the original use of the equipment must begin with the taxpayer, or the taxpayer must construct the system. The equipment must also meet any performance and quality standards in effect at the time the equipment is acquired. The energy property must be operational in the year in which the credit is first taken.
If the project is financed in whole or in part by subsidized energy financing or by tax-exempt private activity bonds, the basis on which the credit is calculated must be reduced. (The formula is described in the tax credit instructions.) Subsidized energy financing means "financing provided under a federal, state, or local program, a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy." Therefore, a business must reduce the basis for calculating the credit by the amount of any such incentives received. Businesses who receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit.
USDA Rural Energy for America Program (REAP) – Grants
The USDA Rural Energy for America Program (REAP) offers rural small businesses and agricultural producers grants to conduct feasibility studies, make energy efficiency improvements, and purchase renewable energy systems. REAP grants have a maximum limit of 25% of a proposed project’s costs.
USDA Rural Energy for America Program (REAP) – Loans
This program offers rural small businesses and agricultural producers loans to conduct feasibility studies, make energy efficiency improvements, and purchase renewable energy systems. REAP loans have a maximum limit of $25 million. Used together, a loan and grant may not exceed 75% of a project’s total cost.
Federal Accelerated Depreciation
Under federal tax code, businesses may recover investments in renewable energy property through depreciation deductions. Solar property is in a property class that has an accelerated depreciation schedule of five years.