Small Businesses Waiting for PTC Extension Approval

Short-term energy production tax credits aren't enough for firms to secure financing and commitment for bigger projects.

By Tosin Mfon, Researcher-Reporter, the Kiplinger letters

September 4, 2008

Industrial giants aren't the only ones flustered by the Dec. 31 expiration date on renewable energy production tax credits (PTCs), worth an estimated $17 billion. Small businesses involved with the production and use of wind, solar and other renewable energy sources see a potential threat to the revenue drivers for their firms that can make all the difference in a shaky economy.

Passage of an extension package will retain jobs and promote growth in these emerging industries, but intermittent short-term PTC renewals are hardly ideal for businesses that need the long-term guarantee of these credits to secure new contracts.

Yet the political challenges are far from over. After several failed attempts to get a PTC bill approved by the Senate, proponents of the extension are scrambling to introduce legislation that will achieve a compromise between both political parties. While it is all but certain that the credits will be renewed this year, it will be a challenge for lawmakers to decide by year-end which bill provides the right package for the PTC extensions.

In early August, an extenders' package was introduced, providing incentives for the Republicans in the Senate. Though promising, the proposed legislation is still in the initial stages -- a sign the process will drag on into the winter.

The production tax credits were initially set to expire at the end of 2006, but were extended to the end of this year as part of the Tax Relief and Health Care Act of 2006. The last extension marked the fourth time that PTCs had been continued since originally enacted as part of the Energy Policy Act of 1992.

Back then, the tax credits were limited to the wind energy, closed-loop biomass and poultry waste energy resources. In 2004, the eligibility requirements were broadened to include solar power and a host of others as part of the American Jobs Creation Act of 2004.

Small businesses have reaped the rewards of PTCs. Builders who construct homes that qualify under the standards for energy efficient homes receive a $2000 tax credit per home. For small electrical contracting firms that retrofit homes with solar panels, a commercial building tax credit helps offset the capital investment in the technology. And business owners who install solar water heating and photovoltaic systems that reduce energy costs receive a 30% credit of the system's cost, up to $2000.

The impact of these credits is felt most in the booming wind energy industry, where many contractors undertake larger-scale projects involving wind turbine parts and where the uncertainty of an extension has stalled plans for 2009.

By one estimate, the PTCs support 76,000 jobs in this industry. Since 1999, the PTCs have expired three times, and each lapse created up to a 93% drop in wind power creation.

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