Renewable Energy and NMTCs

The new markets tax credit program has been around since 2001, but only recently has it received much attention as a means of financing renewable energy projects.  New markets tax credits are designed to attract investment into low income and disadvantaged areas with the ultimate goal to create jobs.

Generally, investors make investments in certain community development entities that in turn take the cash and invest it in businesses located in low-income communities.  The investor receives a federal tax credit equal to 39% of the investment spread over seven years in addition to the actual return on the investment itself.  The community development entity, in turn, uses the investment proceeds to make equity investments or loans to qualified projects.

While new markets tax credits have been successfully utilized in urban areas, Congress has a mandate that a larger percentage of new markets tax credits be employed in more rural areas. The net effect of this mandate is that renewable energy projects, such as large-scale solar, wind, and biomass projects have become far attractive and financially feasible to investors and developers.

A great example of the utilization of new markets tax credits in conjunction with a renewable energy project is what has been done in the City of Denver.  The following link will take you to a fact sheet for the project that was put out by the National Renewable Energy Laboratory:

Denver, Colorado Solar Project