A major goal of the American Recovery and Reinvestment Act of 2009 is to spur activity in the renewable energy sector. However, a technical tax flaw in the legislation is preventing it from accomplishing its objective in the marketplace.
This issue is serious and must be rectified before activity in the renewable sector can increase to the level contemplated by the president. Here's the problem:
In order for a renewable energy project to be economically viable, investors must be able to take advantage of certain tax incentives, primarily depreciation and tax credits. Depending on the type of project, the present value of these tax incentives can be as high as 60 percent of the initial cost of a renewable energy project. Approximately half of that value is attributable to tax credits, and the other half is attributable to depreciation.
However, and this point is crucial, in order to benefit from these tax incentives, an investor has to have taxable income.
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