Cleantech: Get plugged in

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Print this page By Dennis Diersen CPA

It seems every day that another company is making claims about going “green.” Are they just following the Hard Rock Café motto and trying to save the planet? Or is there more to it?

“Cleantech” is a broad term that applies to a diverse industry, including renewable energy solutions, technologies for efficient products, carbon capture and sequestration, water issues, agriculture, smart grid, fuel cells and much more.

Federal and state governments are now providing qualifying companies with unprecedented tax credits and other incentives. Unfortunately, only a fraction of eligible companies are aware of the full extent of these incentives.

Support your claims to get credit

Many organizations make claims of being green, and companies are staking their reputations on green industries and practices. Now, many are getting credit for going green.

Credits can take on many forms. These may include government rebates and incentives, or credits for carbon offset.

Companies are backing up their claims through participation in certification and verification programs. Verifications often take the form of agreed-upon procedures to ensure the entity making the claims meets specific standards.

These organizations allow for branding through certified and verifiable practices, and include such groups as Carbonfund.org, Environmental Resources Trust, Green-e and Voluntary Carbon Standard, among others.

Sector stimulus with credits and incentives

Some of the credits and incentives encouraging investment in the cleantech area include:

Federal and state research and development (R&D) tax credits: R&D tax credits are available for companies developing or improving their products, manufacturing processes, software or certain techniques used in providing services.

Energy-efficient commercial building deduction: Companies that build or remodel a facility using efficient lighting, heating/cooling systems (HVAC) or building envelopes may be eligible for accelerated tax depreciation of the investment using the Energy Efficient Commercial Building Deduction. This can be as much as $1.80 per square foot of facility space.

Renewable energy production tax credit (PTC): A business that produces energy from renewable sources, including energy produced from wind, geothermal, solar or solid waste sources, may be eligible for a federal tax credit. Utilities, as well as other businesses producing electricity from these sources for their own use or to sell energy back to “the grid” during off peak usage periods, are likely beneficiaries.

Recently, BDO USA LLP helped a client, a manufacturer with annual revenues of $500 million, receive a major tax credit for going green. The company had installed a solar panel system on its roof to reduce energy costs. “The client was able to capture a $400,000 tax credit for installing the solar equipment,” said Matt Becker, partner and national leader of BDO USA LLP’s green energy tax services group and cost segregation team.

● Business energy investment tax credit (ITC): The business energy ITC is available to all businesses that invest in equipment used to produce energy from a renewable resource. The credit can cover between 10 and 30 percent of the initial investment.

Greater flexibility and monetizing credits: Many recent changes have been enacted to help cleantech companies navigate the current challenging financial climate, such as Refundable R&D and Alternative Minimum Tax Credits. A refundable tax credit is a rare feature of the code because it permits a taxpayer to receive cash from the Internal Revenue Service (IRS) even if it has no taxable income, no tax liability and no payments of estimated tax. Some early-stage companies still in Net Operating Loss (NOL), but that were active in investment and development prior to 2006, may be able to identify and monetize old R&D credits as cash.

According to Seth Ginther, a government affairs and regulatory lawyer with Hirschler Fleischer, if companies know where to look, there is an opportunity to finance a renewable energy project with up to 50 percent of government grants.

“This has been an enormous boon to the renewable energy industry,” Ginther said, citing an example in which the Virginia Tobacco Commission set aside $100 million in research and development grants for renewable energy. “This past spring we successfully lobbied the tobacco commission for a portion of those funds for two different client projects totaling several million dollars.”

Access to capital markets

There was about a one-third reduction in new investments worldwide in 2009 as a consequence of the tightened credit market and the recession. There was some improvement in 2010, and the cleantech sector was by far the largest arena to receive venture capital funding.

In 2010, 72 percent of venture capital investment in the U.S. was in cleantech, according to the Cleantech Group. Solar projects received the most investment, followed by transportation.

The Cleantech Group says “cleantech venture investment was up by 28 percent compared to 2009 ($6.1 billion), making 2010 the second highest year for investment after 2008 ($8.8 billion). The number of deals was 715, a new annual record, ahead of the previous high (624) recorded in 2009.”

“Cleantech, along with biotechnology and medical devices, remains one of the leading sectors for venture investments,” according to Tom Tullidge, co-managing director of Cary Street Partners. “After taking a more defensive posture in 2009, venture funds now have significant reserves of dry powder that they must put to work.”

Amersco, Amyris, A123 Systems, Sensata, Energy Recovery, Codexis and Tesla Motors are just some of the cleantech initial public offerings (IPOs) that have taken place in the past two years. Going public can be critical to a company’s success, yet getting there can be a daunting process.

The future of green

Several themes seem clear in the cleantech marketplace. Cleantech and going green apply as much to traditional corporations as they do to those companies specifically focused on developing new technologies in this area.

Cleantech is a fledgling industry that appears destined to grow rapidly for years to come, but probably still needs government incentives until the economics of projects can stand on their own. Without a return on investment (ROI), companies will still make major efforts to go green due to expectations from customers, regulators and employees, but projects may be more limited in scope. In any event, we should expect to see major initiatives and breakthroughs in the cleantech sector for years to come.

Dennis Diersen CPA, is a tax partner and tax business line leader at BDO USA LLP in Richmond. BDO is the world’s fifth largest accounting network, providing assurance, tax, financial advisory and consulting services. Contact him at .(JavaScript must be enabled to view this email address).

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