UPDATED: Senate passes tax plan that extends 1603 Program

By | December 10, 2010

The U.S. Senate passed a tax bill that includes a component that should significantly benefit the developing biomass power industry—a continued Section 1603 Program, which extends for one year the start-of-construction deadline for the for the cash grant in lieu of tax credit program, which was established in the Recovery Act.

The 1603 Program enables qualifying renewable power projects that are eligible for either the federal production tax credit or investment tax credit to instead elect a 30 percent project reimbursement cash grant administered by the U.S. Department of the Treasury. In order to reap that benefit, however, project construction had to begin by the end of 2010.

The possible expiration of 1603 has been a source of frustration for developers facing difficulties obtaining permits in a timely manner and has rushed others. “A huge amount of resources have gone into trying to make sure that people begin construction for 1603 purposes,” said Gregory Jenner, Stoel Rives tax practice group partner. “Of course now, [pending bill passage] much of that work was unnecessary.” 

Jenner said the proposed extension is significant to the growth of the industry. “It’s not the final deal though. We hope the entire Congress sees the wisdom of just a straight extension of 1603, and not a complete rewrite, which is possible coming from the House side.”

That would be a bad thing, Jenner added, but it would be better than no extension at all. “Clearly though, it would not be as good as just moving the required beginning of construction date.”   

According to a report released by Berkley National Laboratory in April, most or all open-loop biomass electric capacity built in 2009 elected the grant, likely because open-loop biomass is only eligible for 50 percent of the federal renewable energy production tax credit but is eligible for the full 100 percent cash grant.

Eight biomass power projects totaling 130 megawatts have received $72.5 million in 1603 funds, amounting to less than 3 percent of 1603 funds distributed.

The potential extension of 1603, coupled with a series of recent federal emission ruling developments, is generating some positive energy for the biomass industry. This includes the recent filing of a motion by the U.S. EPA for a 15-month extension for issuing the industrial boiler Maximum Achievable Control Technology (MACT) rules, as well as the EPA’s issued guidance for developing best available control technologies to reduce greenhouse gas emissions, which signals that states may be able to consider the use of biomass energy as a method.

The bill will now go to the House where it is expected to come to a vote on Thursday.