Headlines are consistently filled with funding and incentive announcements for investments within alternative energy manufacturing. Recent examples include the Electric Drive Vehicle Battery and Component Manufacturing Initiative, which awarded $2.4 billion to accelerate the development and production of various electric vehicles, and the recently closed Advanced Energy Manufacturing Tax Credit, which will be awarding $2.3 billion in tax credits for the manufacturing of new renewable energy technologies. While these recent announcements are exciting for our region and attest to the importance of Midwest manufacturing, many manufacturers are left wondering if it’s too late to access all of these incentives. What other energy tax incentives are still available that they may leverage?
The short answer — it’s not too late. There are still several incentive programs that a business can utilize. However, before asking what funding is available, a company should first assess whether diversification within the renewable energy market is the right business decision. Will the upfront capital outlay necessary to reach diversification within renewable energy provide adequate financial returns to justify the risks? Just because a company has experience producing a product for an automotive application doesn’t mean that same application will work within the renewable energy sector. For example, even though bushings are required in both a vehicle and a wind turbine, the specifications, tooling, and volumes may be drastically different. Oftentimes, the alternative energy sector demands a significantly lower volume and higher precision than that of the automotive sector.
Once a business decision is made to pursue manufacturing within the renewable energy sector, entity structuring is pivotal in providing the maximum return on available federal and state incentives. For example, without specific structuring, state incentives can be considered taxable income to the entity, which reduces the return on investment. However, with some advanced planning, the project can be structured to address the taxable nature of the grant receipt, thus significantly reducing any tax liability.
Many state incentives are still open, however they are quickly approaching initial application deadlines. New programs likely will become available, however the push to put the stimulus funding into action has resulted in short application windows. Many states have specific renewable energy renaissance zones that significantly reduce state and local income taxes as well as personal and real property taxes.
Programs that have not received as much attention in the media but may have widespread applicability are the “Renewable Energy and Energy Efficiency Program” through the United States Department of Agriculture and the increased loan amounts and more attractive loan rates available under the Small Business Administration. These programs offer attractive grant and loan guarantees for projects incorporating renewable energy.
If you would like to discuss opportunities and specifics that are available as a result of the various federal, state, and local incentive programs available to manufacturing within the renewable energy sector or how to structure projects in order to maximize the return on investment, please contact us.