Kentucky Sets Incentives for Biofuels & Renewable Energy

Kentucky Governor Ernie Fletcher signed wide-ranging energy legislation last week that creates a variety of incentives for biofuels and renewable energy. House Bill 1 creates incentives of up to half the capital investment in a project that creates alternative fuel from biomass or that creates electricity from renewable energy sources.

To qualify, a biofuel facility must involve a capital investment of at least $25 million and a renewable power facility must involve a capital investment of at least $1 million. If the renewable power facility uses solar energy, it must be at least 50 kilowatts in size, but other renewable power facilities must be at least 1 megawatt in size.

The incentives can include an advanced disbursement of the labor costs on a new project; a reimbursement of up to 100% of the sales and use taxes on property bought during construction; and a tax credit of up to 100% of the income tax and limited liability entity tax owed by the company. Under certain conditions, companies can also assess 4% of employee gross wages, which the employees can then take as a credit against their income tax. The bill’s incentives will be funded with the proceeds from $100 million in bonds.

The bill also expands an existing tax credit for biodiesel and adds new tax credits for other biofuels. The biodiesel tax credit of $1 per gallon is expanded to include renewable diesel, and the cap on the total tax credit is increased from $1.5 million to $5 million in 2008, and then further increased to $10 million in 2009. The bill creates separate new tax credits of $1 per gallon for ethanol produced from corn, soybeans, or wheat and for ethanol produced from cellulosic biomass, each of which includes a cap of $5 million.

However, if some of the $5 million in cellulosic ethanol tax credits go unused, they can be used to increase the cap for the corn ethanol tax credit.

Among other features in the wide-ranging bill are the creation of the Governor’s Office of Energy Policy; the creation of the Kentucky Alternative Fuel and Renewable Energy Fund to promote research and development; and an effort to create a Center for Renewable Energy Research and Environmental Stewardship.

This article first appeared in the EERE Network News, a weekly newsletter from the U.S. Department of Energy’s Office of Efficiency and Renewable Energy.