Up to their usual helpful tricks, the folks at the National Renewable Energy Laboratory (NREL) have once again teamed up with the Lawrence Berkeley National Lab to offer some much-needed guidance through the wealth of renewable energy incentive choices now available for commercial installations. They’ve just released a report that walks you through the differences among the feds’ new incentives: the production tax credit, investment tax credit, and cash grant options. Since you can choose one but you can’t choose them all, it helps to understand the real differences behind each option in determining which can be of most use to your business. Solar is not eligible for the production tax credit, but pretty much everything else is (geothermal, wind, biomass, hydroelectric, tidal…you get the picture).

The reason the government is trying to help us through the maze is that we never used to have all these choices. The choices are brand-new, dating only to President Obama’s economic stimulus package (ARRA 2009), which included about $40 billion for clean energy initiatives. Relying purely on tax-based incentives to incentivize a market that badly needs the growth doesn’t work so well when companies are experiencing heavy losses in a recession, reducing or totally eliminating their tax burden. Hence, a company that previously had only MACRS and the 30% ITC can now opt to change out the ITC for a PTC, or even–for a short time only, to be a real shot in the industry’s arm–the equivalent amount of the ITC in cold hard cash. The report explains:

Because the two credits are structured differently, and apply in different ways to different technologies, the choice between the two lends itself to quantitative financial analysis of the conditions under which either the PTC or the ITC would, at least in theory, provide greater financial value. Qualitative considerations may be equally important, however, particularly in instances where quantitative differences are modest.

It boils down to how dire your straits are. The PTC is potentially more lucrative than the 30% cash grant, depending on how well the market performs over the ten years during which the PTC will be viable, but well, who doesn’t love cash in hand? The report authors note that those companies able to venture out onto a limb a bit might find the idea of a healthy production credit alluring, but…

…some developers and project owners will nevertheless prefer the certainty offered by the ITC over the performance risk inherent in the PTC – even if the PTC promises a higher expected value.

Another big factor is how long the owner of a renewable energy system expects to hang on to it. If you’re going to sell within five years, the PTC makes more sense, as it’s an incentive that provides immediate value to new purchasers. The cash (or ITC, if you go old-fashioned on us) is applied over a 5-year period–and once it’s gone, it’s gone, providing little in the way of a carrot to potential buyers of the system. The ITC or cash, however, will be more appealing to those projects than want to take advantage of low-interest government loans to help finance the project; these are combinable with the ITC/cash, but not with the PTC.

The report doesn’t detail solar–it focuses on quantitative and qualitative analysis for wind, biomass, geothermal, and landfill gas, since these are the technologies that stand to gain most from the PTC for which solar is not eligible. But becoming intimately familiar with them is the best way to decide how best to take advantage of federal support for your solar installation–it pays to know the whole picture.

Thanks to Renewable Energy World for pointing this out. And download the full report here (PDF).