The previous entry in the ALABC U.S. Battery Policy Blog (July 17, 2012) described how two ongoing efforts by the U.S. Department of Energy and the Federal Energy Regulatory Commission have important implications for the growing grid storage industry.

Another important issue is currently being debated in the U.S. Congress, how should the U.S. tax code treat investment in energy storage? Should new incentives be enacted or should Congress simply eliminate targeted incentives and lower the corporate tax rate for all sectors of the economy?

The most talked-about issue currently is whether Congress should renew a production tax credit (PTC) used by the U.S. wind industry. That credit is due to expire at the end of 2012. Extending the PTC is a major objective of the wind industry, something that also has implications for the energy storage business, which helps renewable energy overcome intermittency issues. The PTC, which grants wind project owners a credit of 2.2 cents per kWh of energy produced, helps owners secure more favorable financing.

If Congress does not extend the PTC, the wind industry says many projects will be suspended, jobs will be lost and the effort to diversify the nation’s power supply with renewable energy will be compromised.

Many Democrats, including President Obama, strongly support extending the tax credit. But, Republicans are largely divided, with some conservatives saying the government should stop giving tax breaks to specific industries and instead lower the corporate tax rate across the board from 35 to 25 per cent. Republican presidential candidate Mitt Romney opposes extending the PTC.

Leaders in the House and Senate have said the PTC issue will not be decided until after the November 6 election, when Congress will reconvene for a “lame duck” session.

While the energy storage industry could benefit, at least indirectly, from an extension of the PTC, another bill would have a more direct, positive impact. The “Storage Technology for Renewable and Green Energy Act,” is pending in both the House (H.R. 4096) and Senate (S. 1845). It would amend the Internal Revenue Code to allow, through 2020, a 20 per cent energy tax credit for investment in energy storage property directly connected to the electrical grid. (For non-profit ventures, the bill would make energy storage eligible for renewable energy bond financing.)

Although tax credits can be valuable, they can only be applied against taxable income. Many renewable projects lack sufficient taxable income to justify using tax credits. It is for this reason that another bill is attracting attention. The “Master Limited Partnership Parity Act,” (S. 3275) would extend the definition of master limited partnerships (MLPs) to include private firms in the business of generating, storing or transmitting electric power from renewable technologies. Currently, the MLP statute only applies to real estate firms and businesses dealing in “depletable” resources such as crude oil, natural gas, coal, timber and minerals.

By using an MLP structure, firms can be structured as partnerships while having their ownership interests traded like corporate stock. This enables MLPs to be taxed only at the shareholder level. Regular corporations are taxed at both corporate and shareholder levels.

The master limited partnership structure has, by all accounts, been very successful, with more than 100 MLPs in business. The National Association of Publicly Traded Partnerships estimates that of the estimated $350 billion in MLP capital currently in the market, approximately $290 billion (83 percent) has gone into qualifying energy and natural resources. Of that, just over 80 percent has gone into midstream oil and gas pipeline projects.

Broad support adding renewables to the list of technologies eligible for MLP treatment comes from many in the wind and solar industries – and also many environmental organizations – who say that as the market moves more toward energy from renewable sources, it is only fair that the MLP structure be made available to that industry as well so they can attract capital in a manner similar to those in the depletable resources industries.

Still, the fact that MLPs are able to avoid being taxed as corporations means revenue to the U.S. Treasury is foregone, something that many in Congress claim is a problem that must be addressed if the federal deficit is to be brought under control. In fact, the argument is that while it may seem fair to extend the MLP definition to renewables, it would be even more fair to eliminate the MLP structure altogether so everyone would pay the same tax rate.

This is the approach being suggested by Rep. Dave Camp (R-Michigan), Chairman of the House Ways & Means Committee, who recently introduced H.R. 6169 to reduce the corporate tax rate to no more than 25 per cent, repeal the Alternative Minimum Tax and broaden the tax base to maintain current revenue levels.

Mr. Camp said he does not plan to bring up H.R. 6169 for a vote this year, which means the targeted incentives for clean energy still have a chance for enactment in the lame-duck Congress.