Business Energy Tax Credit

Summary

NOTE: In June 2011, the Oregon State Legislature passed HB3672, making significant changes to the Business Energy Tax Credit program.  This program will be redesigned, though details on the new program are not available yet.  This record is for informational purposes only.

Oregon's Business Energy Tax Credit (BETC) is for investments in energy conservation, recycling, renewable energy resources, sustainable buildings, and less-polluting transportation fuels. Any Oregon business may qualify, including, but not limited to, manufacturing plants, stores, offices, apartment buildings, farms, and transportation. The tax credit can cover costs directly related to the project, including equipment cost, engineering and design fees, materials, supplies and installation costs. Loan fees and permit costs also may be claimed. However, replacing equipment at the end of its useful life or equipment required to meet codes or other government regulations are not eligible. Maintenance costs are also not eligible. All projects must meet the applicable BETC technical requirements to qualify.

Projects that use solar, wind, hydro, geothermal, biomass or fuel cells (renewable fuels only) to produce energy, displace energy, or reclaim energy from waste may qualify for a tax credit. Renewable resource projects must replace at least 10% of the electricity, gas or oil used. The energy can be used on site or sold. Solar arrays that take BETC must be used solely for business purposes, unless being installed by a homebuilder or on a rental dwelling or high performance home. Solar systems that are taking advantage of Oregon's Pilot Solar Volumetric Incentive Rates and Payments Program are not eligible for BETC. The tax credit for facilities using or producing renewable energy resources is capped at $300 million for systems pre-certified from July 1, 2009 to June 30, 2011 and $150 million for systems pre-certified between July 1, 2011 and June 30, 2012. Projects must receive final certification before July 1, 2012, to use the tax credit. Renewable energy equipment manufacturing facilities must receive preliminary certification before January 1, 2014, in order to use the tax credit.

The tax credit is also available to homebuilders who install renewable energy systems on the homes they construct. The maximum tax credit for a homebuilder is $9,000 per single-family home, or $12,000 if the system is installed on a certified high-performance home. To be considered a high-performance home, the dwelling must be certified through the Northwest Energy Star Homes Program, and meet additional requirements outlined in the technical requirements.

General retrofit projects, in addition to those for lighting, and weatherization projects for rental property may be eligible for the program, as well as new construction projects, including energy efficiency and lighting. Retrofit projects must be 10% more energy efficient than the existing installation; lighting retrofits must be 25% more efficient than existing lighting. For new buildings, all measures must reduce energy use by at least 10% compared to a similar building that meets the minimum requirements of the state energy code.

Cogeneration projects may also be eligible. Projects that develop new markets for recycled materials or recycle materials not required by law may be eligible for the tax credit. Projects that reduce employee commuting (or work-related travel) and investments in cleaner-burning fuels may qualify.

Different cost caps and percentage caps apply to different technologies. Generally, the maximum allowable credits are as follows:

• Renewable energy equipment manufacturing: 50% of certified project costs, distributed over five years (10% per year), up to $20 million;
• Renewable energy generation, high efficiency combined heat and power: 50% of certified project costs, distributed over five years (10% per year), up to $10 million;
• Wind projects over 10 MW: 50% of certified project costs (though only 5% of total project costs are certified costs), up to $2.5 million*;
• All other projects: 35% of certified project costs, distributed over five years (10% in the first and second years, 5% each year thereafter), up to $3.5 million; and
• Credit to homebuilder: $9,000 per single-family home, or $12,000 if the system is installed on a certified high-performance home.

Under the pass-through option, a project owner may transfer a tax credit to a pass-through partner in return for a lump-sum cash payment (the net present value of the tax credit) upon completion of the project. The pass-through option allows non-profit organizations, schools, governmental agencies, tribes, and other public entities and businesses without tax liability to use the Business Energy Tax Credit by transferring their tax credit for an eligible project to a partner with a tax liability. As of January 1, 2010, the pass-through rate "is determined by taking the total tax credit amount divided by the sum of one plus three times the five year United States Treasury Note minus the average of the net change for the three previous calendar years of the urban Consumer Price Index (CPI) for the west region based on the index published on the first day of the calendar quarter and the first day of the same calendar quarter for the previous three calendar years exponentially raised by 5."

Applications and instructions are available on the program web site. The ODOE has published a brochure to explain how the tax credit works.

History:
Since the Business Energy Tax Credit was originally created, several pieces of legislation have modified the credit and these caps. In 2001, the Oregon Legislature added sustainable buildings to the list of measures and systems eligible for the tax credit. This addition became effective October 8, 2001, and is retroactive to January 1, 2001. In addition to several requirements set forth by the ODOE, the building must meet established standards set by the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) for Silver Certification.

HB 3201, enacted in July 2007, increased the tax credit to 50% of the total cost for renewable energy, high efficiency combined heat and power, and renewable energy equipment manufacturing facilities, with a maximum credit of $10 million. The tax credit for all other projects remains at 35% of eligible project costs. The 50% tax credit is taken over five years -- 10% each year. Any unused credit may be carried forward up to eight years. Those with eligible project costs of $20,000 or less may take the tax credit in one year. These changes were retroactive to include projects beginning on or after January 1, 2007. This legislation also created a sunset date of January 1, 2016, though this sunset date has since been modified.

In March 2008, HB 3619 increased the maximum credit just for manufacturers of renewable energy equipment to $20 million (50% of a $40 million facility). HB 3619 also requires the Oregon Department of Energy (ODOE) to set standards related to what constitutes a manufacturing facility, as well as the facility’s minimum level of increased employment, financial viability, and the influence that the BETC would have on a manufacturer locating in Oregon. ODOE can apply those standards to certify a lesser amount of costs than applied for, including zero costs. HB 3619 also requires ODOE to consider criteria relating to the state’s general fund before determining the amount of costs eligible for the BETC.

In November 2009, the Oregon Department of Energy adopted temporary administrative rules (effective from November 3, 2009, to May 1, 2010) that more stringently define criteria for separate and distinct facilities for the purpose of applying for multiple credits. The new rules also allow the Oregon Department of Energy to revoke certificates and recapture the tax credit if a project does not produce the amount of energy, jobs, or conservation described in the application. Any projects that were not pre-certified by November 3, 2009, were subject to the new rules.

In March 2010, HB 3680 was signed by the governor, reducing the maximum credit available to wind facilities that have an installed capacity of more than 10 MW. These facilities are eligible for a tax credit of 50% of certified costs (though only 5% of total costs may be included in certification costs), up to $3.5 million for projects pre-certified between January 1, 2010 and December 31, 2010. Systems pre-certified between January 1, 2011 and December 31, 2011, are eligible for a tax credit up to $2.5 million. Systems pre-certified on or after January 1, 2012, are eligible for a tax credit up to $1.5 million. This bill also created a maximum cap on the number of tax credits awarded. The tax credit for facilities using or producing renewable energy resources is capped at $300 million for systems pre-certified from July 1, 2009 to June 30, 2011, and $150 million for systems pre-certified between July 1, 2011 and June 30, 2012. Finally, this bill increased the discretion the Oregon Department of Energy has in issuing tax credits. The changes made by this bill were incorporated into the temporary administrative rules issued May 21, 2010. The temporary rules were effective until permanent rules replaced them on November 23, 2010. These new rules are in effect for all preliminary and final applications received on or after July 1, 2009.


* These facilities are eligible for a tax credit of 50% of certified costs, up to $3.5 million for projects pre-certified between January 1, 2010, and December 31, 2010. Systems pre-certified between January 1, 2011 and December 31, 2011, are eligible for a tax credit up to $2.5 million. Systems pre-certified on or after January 1, 2012, are eligible for a tax credit up to $1.5 million.