The Production Tax Credit and Biomass

By Anna Simet | January 04, 2013

The tax bill passed early this week was packed with—and lacking some—policy  pertinent to our industry, all of which we have covered during the last week to make sure our readers are up-to-date on the last attempt of the train wreck otherwise known as the 112th Congress to do its job.

Right away I began researching the production tax credit and how its reinstatement/modification will affect the biomass energy industry (wading through the legislative garb in the actual bill is a little confusing to the average Joe, which includes myself). Then I wrote up a brief news story touching on the changes and including comments from some tax policy experts and groups with stakes in the industry, after  which I recieved the following email from a reader:

“…In short, if I start construction on a biomass power plant this year, does it still have to be in service by Dec. 31, 2013, or does that in-service date get extended to Dec. 31, 2015?  As you know, biomass power plants generally take 24 months of construction, so this is very relevant.”

The answer to this question? No. The placed-in-service date is no longer an issue, as the construction deadline has now replaced it. As long as a qualifying biogas or biomass energy facility has met the construction deadline of Jan. 1, 2014, it will be eligible for the production tax credit, which varies by technology.  Wind, geothermal, closed-loop biomass receive 2.2¢/kWh, and other eligible technologies, such as open-loop biomass, landfill gas and municipal solid waste (MSW) receive 1.1¢/kWh for other eligible technologies.

(NOTE: The critera that will need to be met to be considered to have begun construction is not clear right now, but I'll provide an update when I find out.)

The bill also revised the definition of the term MSW to exclude "paper that is commonly recycled and which has been segregated from other solid waste." The definitional change for MSW applies to electricity produced and sold after Jan 2, 2013, in taxable years ending after that date.

I’m eager to hear from some developers as to how this legislation modification will affect their plans. As frustrated as we have been with Congress and its inability to get anything done, this seems to be a really good thing for industry development over the next couple of years; perhaps this change will be reflected in the results of our next U.S. biomass power map, which we will begin work on late this summer.