According to a press release from Puget Sound Energy, “Prior to the revision, federal regulations (interpreting section 45 of the Internal Revenue Code) restricted federal tax credits for renewable energy production in a way that barred their use by utilities that were partnering with investors to generate renewable energy.”

Many larger utilities will sell their generated power to an affiliate company which then brokers the power on the open market. In order to qualify for the credit the final sale of the energy generated by the facility must be sold to a party unrelated to the utility. This allows the utility to sell the power to an affiliated intermediate party who can then broker the energy and complete the sale.

On the positive side there are new federal mandates for auto efficiency. The new CAFE standards are likely to result in cleaner technologies for automobiles and increased investment into biofuels.

On the negative side there was no extension of the critical renewable electricity production tax credit which expires at the end of 2008. This tax credit provides a strong incentive for clean energy developers (including wind and solar) to launch successful projects. In order to benefit from the credit these projects must generate electricity and be profitable. The presence of such credits undoubtedly spurs investment into the clean energy space in the United States. The lack of certainty over the credit post-2008 may stymie investment.

The major issue related to the tax credits seems to be the omnipresent question of, “Who’s going to pay for it?” So in the interest of moving the bill forward these provisions were removed. This “watered down” version of the energy bill is likely to pass an upcoming House vote and be signed into law by President Bush. Unfortunately this law has a huge hole that needs to be addressed on the issue of what to do about electricity production tax credits.