To most people the value of a penny is rather inconsequential. To biomass power producers though, the difference between a penny and 2 cents can make or break projects and hogtie the whole industry. Small biomass power plants from California to Maine have been denied equal access to the full renewable energy production tax credit (PTC) in section 45 of the Internal Revenue Service tax code for which their counterparts in the wind and geothermal industries have been eligible for years. The full credit is 2 cents per kilowatt hour—plants burning forest and agricultural residues for electrical generation for sale back to the grid receive only 1 cent per kilowatt hour. This disparity is one of the most debated issues in the broader renewable energy complex and is a major point of contention among those in the biomass industry itself. “Closed-loop” biomass power plants have been eligible for the full credit for 15 years but the allowance of “open-loop” generators to receive any credit at all was an afterthought. Consequently, they drew the short ways-and-means stick.

A closed-loop biomass power plant is one in which the feedstock is grown specifically for the purpose of power generation. These are eligible for the full PTC as stated in section 45 of the IRS tax code. Jerry Whitfield of Biomass Investment Group told the U.S. House Committee on Ways and Means recently that no closed-loop section 45 biomass electricity PTC has ever been claimed since its inception in the Energy Policy Act of 1992. Robert Cleaves, chairman of the USA Biomass Power Producers Alliance, suggests why. “A number of us think that the reason why there has not been a closed-loop system built—not withstanding 15 years of tax credits for it—is because the economics have been challenging and the development horizon is long,” Cleaves tells Biomass Magazine. “And there doesn’t seem to be an obvious business model out there that would accommodate a closed-loop system.”

Disparity in Section 45 Eligibility for a 50 MW Biomass Power Plant

Over the course of a year, a hypothetical 50 MW closed-loop biomass power plant is eligible for $4.4 million more in IRS section 45 production tax credits—at the 2-cent-per-kW/hr rate—than the same sized open-loop biomass power plant, which is only eligible for 1 cent per kW/hr.
SOURCE: USA BPPA

Unlike closed-loop systems, an open-loop biomass power facility burns waste wood or other lignocellulosic residues to generate electrical power. Because the nature of the open-loop’s feedstock and the lower or even negative cost of the hand-me-down fuel, these power companies may only cash in on half the value of the full PTC allotted to wind and geothermal power generation, and the nonexistent closed-loop biomass facilities. The 41 members of USABPPA represent 70 percent of all the standalone biomass power generated in the United States, accounting for 1,100 megawatts of electricity—all from open-loop biomass power generation.

“We are the only national trade association in biomass to energy doing what we do,” says Bill Carlson who recently retired as USABPPA chairman after nearly a decade of service—the position Cleaves filled. “We are different than ACORE (American Council on Renewable Energy) in that the way we are funded and organized, we have the ability to advocate legislatively—ACORE cannot. Through our lobbyists in [Washington] D.C., we advocate our position on Capitol Hill. Our ability to be successful there is directly tied to our ability to have success in getting a broad membership in different geographical regions of the country.” Without a voice in Washington biomass power producers may never receive section 45 tax parity, nor gain an extension to the “in-service” date—which is critical to growing biomass power generation.

Extension is Job One
All the advocating in the world for tax parity between open- and closed-loop biomass power projects means nothing if the in-service date is not extended. In his statement, Whitfield told Congress that these one-year extensions do little to instill confidence in investors to fund the move from design to construction—especially for the elusive closed-loop system which hitherto has been a specter in the biomass power industry. Rather than a short extension, Whitfield suggested a five-year prolongation. Lengthening the in-service date of the PTC despite the disparity is on the forefront of the USABPPA agenda—and signs of success are beginning to show.

California Feedstock Cost Increase

According to USABPPA leadership the competition for wood waste in California over the last five years, in part due to power plant retrofitting in preparation to meet the Golden State’s upcoming RPS, has caused wood-waste feedstock costs to jump from an average of $22 per bone dry ton to $40 per BDT.

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