Are Renewable Energy Fed Tax Credits Right For Your Company?

This is the eighth in a series of blog posts about renewable energy options for retailers. 

As retailers look to reduce their environmental footprint and grow renewable energy investments, RILA continues to hear from our members that understanding the ever-changing renewables procurement landscape can be challenging. That's why we are developing a new renewable energy guide, which highlights fundamentals of different procurement options and key considerations, specifically for retailers. 

In a series of blog posts, we'll be outlining various topics featured in the guide; the next chapter in our series, Renewable Energy Federal Tax Credits, is outlined below. We are excited to share the chapters one by one, and to work with partners like Wind Energy Foundation in their development. 
 

What are Renewable Energy Federal Tax Credits?

There are two primary federal tax credits that encourage the development of renewable energy:

1.      Investment Tax Credit (ITC), which lowers the user’s tax burden by a percentage of the upfront cost of the renewable energy system.

2.      Production Tax Credit (PTC), which provides a tax credit per kilowatt hour (kWh) of renewable energy generated.

If a company decides to directly own their renewable tax credits, it can apply either of these tax credits toward its tax liability. On the other hand, if a company decides to purchase renewable power through a third party, it will benefit from lower electric costs because the incentives benefit developers and keep prices low.

Even if a company cannot directly use these tax credits, the ITC and PTC still benefit renewable energy consumers because they enable the production of clean energy at lower prices.

Who uses them/What are the key benefits?

Companies such as IKEA and Google have both benefitted from ITC and PTC. Instead of following the more traditional approach of purchasing renewable energy from a third party, IKEA decided to own its own solar and wind installations. As of July 2018, IKEA operates 104 wind turbines with 263 megawatts (MW) of capacity and has 46 solar energy installations with 45 MW of capacity By owning these systems, IKEA can use either type of tax credit to reduce their liability. On the other hand, Google, committed to investing $2.5 billion into renewable energy, allowing it to collect tax credits on many of its renewable energy investments through what is known as a partnership flip.

Is Pursuing Renewable Federal Tax Credits right for you?

Advantages:

  • Tax credits against your tax liability
  • Lower Power Prices

Downsides:

  • Limited time frame
  • Accounting complexity
  • Only ownership guarantees full tax benefits

Ready to move forward with Renewable Tax Credits?

Like any renewable energy initiative, it is important to identify what commitments have been made in the past and their outcomes. By engaging stakeholders across the organization such as your finance team, you can accurately evaluate the best renewables strategy for your company.

Renewable energy brokers such as Edison EnergySchneider Electric, or Renewable Energy Choice along with third-party developers can help set your company up with renewable energy systems on- or off-site or work with you on a PPA.

For more information about RILA's renewable energy initiatives, contact Erin Hiatt.

Tags
  • Finance
  • Sustainability & Environment

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