As you are likely aware, President Obama’s 2011 Budget Proposal recommends making permanent the Research and Experimentation (R&E) Tax Credit, which at this time remains expired as of the end of 2009. The President has shown consistency in his support of science and the advancement of technology. As quoted in the Tech Daily Dose, National Journal, American Association of Universities President Robert M. Berdahl praised the budget proposal, saying it “underscores the president’s strong conviction that the nation’s investments in the people and ideas that lead to discovery and innovation are critical to short-term economic recovery and, especially, to long-term economic prosperity.”

In addition to proposing the extension of the R&E Tax Credit, the budget provides $28.4 billion for the Department of Energy (DOE) to support scientific innovation, develop clean and secure energy technologies, maintain national security, and reduce environmental risk. Here are a few components that should be of interest for Energy Companies:

Invests in Smart, Energy Efficient and Reliable Electricity Delivery Infrastructure

What’s the Significance to R&E?

This represents spending on new research, pilot studies, and demonstration studies that will be conducted in partnership with industry. Typically these opportunities result in a matching portion from the industry partner, of which R&E tax credits are likely applicable. One area of concern for the Smart Grid technology that will likely garner much attention relates to Cyber-Security. As described in National Institute of Standards and Technology (NIST) document, Smart Grid Cyber Security Strategy and Requirements published September 2009:

“Cyber security must address not only deliberate attacks, such as from disgruntled employees, industrial espionage, and terrorists, but inadvertent compromises of the information infrastructure due to user errors, equipment failures, and natural disasters. Vulnerabilities might allow an attacker to penetrate a network, gain access to control software, and alter load conditions to destabilize the grid in unpredictable ways. The need to address potential vulnerabilities has been acknowledged across the Federal government, including NIST, the Department of Homeland Security (DHS), DOE, and FERC.”

Supports and encourages the early commercial deployment of innovative energy technologies with an additional $36 billion in guaranteed loan volume authority for advanced nuclear power plants and an additional $500 million in credit subsidy to support $3 to $5 billion in loan guarantees for innovative energy efficiency and renewable energy projects

What’s the Significance to R&E?

For companies investing in the development of New Nuclear plants the loan guarantee program is an essential ingredient to mitigating risk of deploying new and never before built nuclear technology within the U.S. Even today, the design and development of these new nuclear plants are evolving and require significant R&E on behalf of energy company partners to ultimately develop a final design. This loan guarantee will help to ensure that both the new nuclear initiative will be enabled to be realized as well as supporting other innovative energy efficiency and renewable energy programs.

Accelerates the transition to a low-carbon economy through support of development and deployment of clean energy technologies such as solar, biomass, geothermal, wind, nuclear, and low-carbon emission coal power

What’s the Significance to R&E?

Significant funding (nearly $2.4 billion in total) is available for the advancement of low-carbon energy options that includes:

  • $302 million for solar energy
  • $220 million for biofuels and biomass R&E
  • $325 million for advanced vehicle technologies
  • $231 million for energy efficient building technologies

These funds support accelerating research, development and demonstration of nuclear technologies and the commercialization of new nuclear power facilities. Again in each of these areas energy partners will be investing their own funds in cooperation of this effort. These efforts should translate to R&E Tax Credit opportunities for energy companies.

One area to pay close attention, for new R&D investment, is the biomass area as it relates to plant conversions and the development of new biomass plant technologies. Currently, the U.S. Energy Information Administration projects significant growth in the use of biomass in electricity generation (see the accompanying chart below).

In all, the proposed budget allocates approximately $10.1 billion dollars of the $28.4 billion in DOE funds to Science and Energy Resources. This represents an enormous opportunity for energy companies who choose to participate in partnership with the DOE to recoup a portion of their investment in the form of R&E tax deductions/credits.

About the Author:
Greg Lormand is Director, Tax Services for BCP Engineers & Consultants where he concentrates on supporting clients on niche’ tax areas such as Research & Experimentation (R&E). Mr. Lormand has a BS Degree in Mechanical Engineering and Masters Business Administration from Louisiana State University.

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