About a week or so ago, the NY Times’ Green Inc. blog posted this piece about the tax barriers to the growth of renewable energy companies. Many of the companies rely heavily on something called “tax equity” for their funding, but flaws in the tax equity system inhibit the companies’ growth. This could be a genuine concern for many Oregon businesses because of the vast amount of renewable energy companies in the state, many of which rely heavily upon the government. In the not so distant past — three weeks ago! — we were reading and talking about the rapid growth of greentech companies, including here in Oregon. So what changed? Well, maybe greentech companies are not yet suffering as much as other companies, but should expect troubles unless the much talked about 2009 landmark legislation is passed.
According to Green Inc., renewable energy companies rely heavily upon federal tax credits (the credits are the “tax equity”). The problem is that these federal credits are useless unless the companies turn a profit. As the Green Inc. author Kate Galbraith put it:
In a nutshell, the huge tax credits that the wind and solar industries have received come with a catch: investors need adequate profits to take advantage of them, because the credit is used to offset tax liability.
So the necessity of profits makes us wonder if the federal government would consider a solution similar to the one adopted in Oregon: the Oregon Business Energy Tax Credit “pass-through.” (We’ve written about this extremely popular program in the past, and were admittedly somewhat skeptical of the pass-through aspect.)
In essence, the pass-through aspect is a secondary market that allows credit qualifying companies that don’t have adequate profits to sell the credit to other companies. So, hypothetically, ABC green company in Oregon, a startup without enough profits, may be able to create a qualifying tax credit project under the program, then sell the credit to another company.
The pass-through option is a distinct advantage for Oregon green companies. That is, of course, if other states don’t already offer the same benefit. We’d be interested to find out if anyone knows of similar programs in other states.
Tags: green companies, tax credits, tax equity
