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Industry Jargon - Seeing the Forest through the TreesThe New Markets Tax Credit and Renewable Energy industries use lots of “jargon”. To help the newcomer out, below is a list of some of the common terms and acronyms used and their definition. Please note, these are simplified definitions of sometimes highly technical terms, and should not be relied on for transaction structuring and compliance purposes.
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New Markets Tax Credit Definitions
“Allocation” refers to the amount of the award granted to the CDE by the CDFI Fund. The amount of NMTCs that the CDE can access are equal to 39% multiplied by the total allocation awarded.
“Allocatee” means a CDE that has successfully won allocation from the CDFI Fund.
“CDE” means a Community Development Entity, which is an entity certified by the CDFI as a development entity as having as its primary mission serving or providing investment capital for, low-income communities or low-income persons; and must maintain accountability to low income communities through advisory or governing board representation.
“CDFI Fund” means the Community Development Financial Institutions Fund, a wholly owned government corporation within the U.S. Department of the Treasury. The CDFI Fund has allocation authority for NMTCs.
“Investment Fund” refers to an entity formed (usually an LLC) to aggregate tax credit investor equity with debt in order to increase returns to the tax credit investor. Investment Funds use the aggregate funds to make QEIs (see definition below) that trigger the NMTC.
“LIC” or “Low-Income Community” means any census tract if the poverty rate for that tract is at least 20% OR, if the tract is located within a metropolitan area, the median family income for the tract is not more than 80% of the greater of statewide median family income or the metropolitan area median family income. If the census tract is not located within a metropolitan area, the median family income for the tract cannot exceed 80% of statewide median family income.
“NMTC” or “New Markets Tax Credit” refers to a 39% tax credit allowed under IRC section 45D for QEIs made in CDEs.
“QALICB” means a Qualified Active Low-Income Community Business as defined by the NMTC rules. Generally, this is a business with at least 50% of its gross income derived from the conduct of its business within a Low-Income Community. When trying to determine whether a business is a QALICB, there are additional detail criteria that must be considered.
“QCT” means a Qualified Census Tract, which is one that meets the definition of a Low-Income Community (LIC).
“QEI” or “Qualified Equity Investment” means an equity investment in a CDE.
“QLICI” or “Qualified Low Income Community Investment” means a debt or equity investment in a QALICB.
“Allocatee” means a CDE that has successfully won allocation from the CDFI Fund.
“CDE” means a Community Development Entity, which is an entity certified by the CDFI as a development entity as having as its primary mission serving or providing investment capital for, low-income communities or low-income persons; and must maintain accountability to low income communities through advisory or governing board representation.
“CDFI Fund” means the Community Development Financial Institutions Fund, a wholly owned government corporation within the U.S. Department of the Treasury. The CDFI Fund has allocation authority for NMTCs.
“Investment Fund” refers to an entity formed (usually an LLC) to aggregate tax credit investor equity with debt in order to increase returns to the tax credit investor. Investment Funds use the aggregate funds to make QEIs (see definition below) that trigger the NMTC.
“LIC” or “Low-Income Community” means any census tract if the poverty rate for that tract is at least 20% OR, if the tract is located within a metropolitan area, the median family income for the tract is not more than 80% of the greater of statewide median family income or the metropolitan area median family income. If the census tract is not located within a metropolitan area, the median family income for the tract cannot exceed 80% of statewide median family income.
“NMTC” or “New Markets Tax Credit” refers to a 39% tax credit allowed under IRC section 45D for QEIs made in CDEs.
“QALICB” means a Qualified Active Low-Income Community Business as defined by the NMTC rules. Generally, this is a business with at least 50% of its gross income derived from the conduct of its business within a Low-Income Community. When trying to determine whether a business is a QALICB, there are additional detail criteria that must be considered.
“QCT” means a Qualified Census Tract, which is one that meets the definition of a Low-Income Community (LIC).
“QEI” or “Qualified Equity Investment” means an equity investment in a CDE.
“QLICI” or “Qualified Low Income Community Investment” means a debt or equity investment in a QALICB.
Renewable Energy Definitions
“AC” or “Alternating Current” means an electric current that reverses its direction at regular intervals or cycles. In North America, AC is the standard for electricity that comes out of wall sockets in the home, and is set at 120 reversals or 60 cycles per second.
“Alternative Fuel” is a term used for "non-conventional" transportation fuels derived from natural gas (propane, compressed natural gas, methanol) or biomass materials (ethanol, methanol).
“Amp” or “Ampere” is a unit of measure for an electrical current; the amount of current that flows in a circuit at an electromotive force of one Volt and at a resistance of one Ohm.
“Avoided Cost” means the cost it would take for a utility company to generate the next increment of power. Many QF’s are able to sell their power to utilities at avoided cost under PURPA.
“Barrel” or “BBL” is a unit of volume equal to 42 U.S. gallons. One barrel weighs 306 pounds and contains 5.80 million Btu of crude oil.
“Biodiesel” means an alternative fuel that is made from fat or vegetable oil. It generally can be used in any diesel engine with few or no modifications. Although biodiesel does not contain petroleum, it can be blended with diesel at any level or used in its pure form. Blends are typically designated as B[X], where X is the percentage of biodiesel in the blend. Thus, B20 is a mixture that contains 20% biodiesel and 80% petroleum diesel. A federal tax credit is available for blending biodiesel.
“Biomass” means an organic (plant or animal) material that is available on a renewable basis, including agricultural crops and agricultural wastes and residues, wood and wood wastes and residues, animal wastes, municipal wastes, and aquatic plants. Biomass is a fuel for power plants that qualify for federal Production Tax Credits.
“BTU” or “British Thermal Unit” means the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit.
“Capacity” means the maximum power that a machine or system can produce or carry safely, generally expressed in kilowatts or megawatts.
“Capacity Factor” means the amount of actual energy generated at a power plant compared to its calculated maximum output, expressed as a percentage.
“Chlorofluorocarbon” or “CFC” means an organic compound that contains only chlorine, fluorine, carbon and hydrogen. CFCs are known to cause depletion of the ozone layer in Earth’s upper atmosphere.
“Co-generation”, also known as combined heat and power, is the production of electricity and heat from a single fuel source. Co-generation captures heat lost during the production of electricity and converts it into thermal energy, most commonly in the form of steam or hot water. Co-generation systems can greatly improve the efficiency of power plants.
“Compressed Air Energy Storage”, or “CAES”, is a process through which air is captured and stored in a geologically suitable underground cavern (generally excavated salt caverns). CAES can use the off-peak power generated by renewable energy sources to fill the cavern with compressed air. When demand for electricity returns, the stored high-pressure air is returned to the surface through pressure turbines to generate electricity.
“Conversion Efficiency”, as applied to a photovoltaic cell (or solar cell), is the percentage of the solar energy shining on a photovoltaic device that is converted into electrical energy, or electricity. The greater this percentage, the more efficient the electricity generation of the system, thereby making the technology more cost-competitive with other energy sources.
“Decoupling” in the public utilities sector refers to the disassociation of a utility’s fixed cost recovery from the amount of electricity or gas it sells. Under decoupling, utilities collect revenues based on the regulatory determined revenue requirement, most often on a per customer basis. On a periodic basis revenues are “trued-up” to the predetermined revenue requirement using an automatic rate adjustment. This allows for the utility to focus on efficiencies and future investment in their resources rather than generating sales volume.
“DC” or “Direct Current” is the unidirectional flow of electric charge. DC lost out to AC in the 1890s as the standard for electricity in North America due to AC being the more efficient way to transmit electricity over long distances. However, DC is better suited to handle the load from solar and wind farms, as the electricity that is produced from those renewable energy sources starts out as direct current.
“Fossil Fuel” means hydrocarbons formed from the remains of dead plants and animals that have been converted to oil, coal, or natural gas by exposure to heat and pressure in the earth’s crust over millions of years. Due to the extremely lengthy formation process, fossil fuels are considered non-renewable energy sources.
“Fuel Cell” refers to a device that converts chemical energy into electricity. Typically this is accomplished by running a fuel source through the anode segment of the cell where a catalyst oxidizes the fuel into a positively charged ion and a negatively charged electron. The ions then pass through an electrolyte to the cathode segment of the cell, however, the electrons must pass through an external circuit to reach the cathode, generating an electric current in the process. At the cathode, the ion and the electron join with a third chemical with the help of another catalyst to create a waste product. In automobiles, hydrogen fuel is passed through the fuel cell and joins with oxygen from the air at the cathode to form water as the waste product.
“Geothermal Energy” is thermal energy from the earth. Geothermal energy is clean and sustainable, and can be sourced from hot water or steam reservoirs deep in the earth that are accessed by drilling, geothermal reservoirs located near the earth's surface, and the shallow ground near the Earth's surface that maintains a relatively constant temperature of 50°-60°F. An example of a geothermal energy system is a utility using the hot water and steam from reservoirs to drive generators and produce electricity for its customers.
“Grid” is a term used to identify the interconnected network that transports electricity from suppliers to consumers. This network includes power generation stations, transmission lines, and distribution lines.
“Incremental Energy Costs” are the costs of producing and transporting the next available unit of electrical energy. Short run incremental costs (SRIC) include only incremental operating costs. Long run incremental costs (LRIC) include the capital cost of new resources or capital equipment.
“Independent Power Producer” is a power production facility that is not part of a regulated utility.
“Investor-Owned Utility” or “IOU” is a private power company owned by and responsible to its shareholders.
“Kilowatt-hour” is a unit of energy that is most commonly known as a billing unit for energy delivered to consumers. The measurement represents the expenditure of one kilowatt for one hour.
“Least Cost Planning” is a method of power planning that recognizes load uncertainty, embodies an emphasis on risk management, and reviews all available and reliable resources to meet future loads. It takes into consideration all costs of a resource, including capital, labor, fuel, maintenance, decommissioning, known environmental impacts, and the difficulty in quantifying the consequences of selecting one resource over another. Least cost planning seeks to minimize total energy costs.
“Load” can refer to the amount of electrical power required at a given point on a system or the average demand on electrical equipment or on an electric system.
“Methane” is a colorless, odorless flammable gas that is the main component of natural gas.
“Methanol”, also known as “methyl alcohol” or “wood alcohol”, is a toxic, colorless, volatile flammable liquid alcohol, originally made by distillation from wood and now chiefly by oxidizing methane. Methanol can be used as a fuel either directly or in the manufacture of biodiesel.
“Net Metering” is a system that allows a residential or commercial customer to transfer surplus power from a proprietary renewable energy system onto the public utility grid, thereby allowing the customer to offset the cost of power drawn from the utility.
“Passive Solar Energy System” is a solar heating or cooling system that uses natural energy flows to transfer heat.
“Photovoltaic” means capable of producing electricity when exposed to radiant energy, especially light. A photovoltaic system employs solar panels composed of a number of solar cells containing photovoltaic material.
“Public Utility District” or “PUD” is a publicly owned energy producer or distributor. PUDs operate as special government districts under the authority of elected commissions. They are not regulated by public utility commissions. PUDs exist only in the states of California, Oregon, Nebraska, and Washington.
“PURPA” or “Public Utility Regulatory Policies Act” is a federal law requiring a utility to buy the power produced by a qualifying facility at a price equal to that which the utility would otherwise pay if it were to build its own power plant or buy power from another source.
“Qualifying Facility” or “QF” is a power production facility that qualifies for special treatment under PURPA. A qualifying facility must generate its power using cogeneration, biomass, waste, geothermal energy or renewable resources, such as solar and wind. PURPA prohibits utilities from owning majority interest in qualifying facilities.
“Renewable Energy Source” is a source of energy that is derived from natural resources that can be replenished, such as sunlight, wind, tides, geothermal heat, and others.
“Salvage Logging” is the practice of logging trees in forest areas that have been damaged by wildfire, flood, severe wind, disease, insect infestation, or other natural disturbance.
“Slash” is a term that refers to coarse and fine woody debris generated during loggings, including tops, limbs, and cull sections. It is often considered unmarketable.
“Therm” is a unit of heat equivalent to 100,000 Btu or 1.055 × 108 joules. Therms are most often used with natural gas.
“Transmission” is the process of long-distance transport of electrical energy, generally accomplished by raising the electric current to high voltages. Transmission lines are often necessary to transport energy from power plants to the distribution companies.
“Turbine” is a machine for producing continuous power in which a wheel or rotor, typically fitted with vanes, is made to revolve by a fast-moving flow of water, steam, gas, air, or other fluid.
“Turnkey System” is a system which is built, engineered, and installed to the point of readiness for operation by the owner.
“Watt” is the common base unit of power in the metric system. One watt equals one joule per second. It is the power developed in a circuit by a current of one ampere flowing through a potential difference of one volt.
“Alternative Fuel” is a term used for "non-conventional" transportation fuels derived from natural gas (propane, compressed natural gas, methanol) or biomass materials (ethanol, methanol).
“Amp” or “Ampere” is a unit of measure for an electrical current; the amount of current that flows in a circuit at an electromotive force of one Volt and at a resistance of one Ohm.
“Avoided Cost” means the cost it would take for a utility company to generate the next increment of power. Many QF’s are able to sell their power to utilities at avoided cost under PURPA.
“Barrel” or “BBL” is a unit of volume equal to 42 U.S. gallons. One barrel weighs 306 pounds and contains 5.80 million Btu of crude oil.
“Biodiesel” means an alternative fuel that is made from fat or vegetable oil. It generally can be used in any diesel engine with few or no modifications. Although biodiesel does not contain petroleum, it can be blended with diesel at any level or used in its pure form. Blends are typically designated as B[X], where X is the percentage of biodiesel in the blend. Thus, B20 is a mixture that contains 20% biodiesel and 80% petroleum diesel. A federal tax credit is available for blending biodiesel.
“Biomass” means an organic (plant or animal) material that is available on a renewable basis, including agricultural crops and agricultural wastes and residues, wood and wood wastes and residues, animal wastes, municipal wastes, and aquatic plants. Biomass is a fuel for power plants that qualify for federal Production Tax Credits.
“BTU” or “British Thermal Unit” means the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit.
“Capacity” means the maximum power that a machine or system can produce or carry safely, generally expressed in kilowatts or megawatts.
“Capacity Factor” means the amount of actual energy generated at a power plant compared to its calculated maximum output, expressed as a percentage.
“Chlorofluorocarbon” or “CFC” means an organic compound that contains only chlorine, fluorine, carbon and hydrogen. CFCs are known to cause depletion of the ozone layer in Earth’s upper atmosphere.
“Co-generation”, also known as combined heat and power, is the production of electricity and heat from a single fuel source. Co-generation captures heat lost during the production of electricity and converts it into thermal energy, most commonly in the form of steam or hot water. Co-generation systems can greatly improve the efficiency of power plants.
“Compressed Air Energy Storage”, or “CAES”, is a process through which air is captured and stored in a geologically suitable underground cavern (generally excavated salt caverns). CAES can use the off-peak power generated by renewable energy sources to fill the cavern with compressed air. When demand for electricity returns, the stored high-pressure air is returned to the surface through pressure turbines to generate electricity.
“Conversion Efficiency”, as applied to a photovoltaic cell (or solar cell), is the percentage of the solar energy shining on a photovoltaic device that is converted into electrical energy, or electricity. The greater this percentage, the more efficient the electricity generation of the system, thereby making the technology more cost-competitive with other energy sources.
“Decoupling” in the public utilities sector refers to the disassociation of a utility’s fixed cost recovery from the amount of electricity or gas it sells. Under decoupling, utilities collect revenues based on the regulatory determined revenue requirement, most often on a per customer basis. On a periodic basis revenues are “trued-up” to the predetermined revenue requirement using an automatic rate adjustment. This allows for the utility to focus on efficiencies and future investment in their resources rather than generating sales volume.
“DC” or “Direct Current” is the unidirectional flow of electric charge. DC lost out to AC in the 1890s as the standard for electricity in North America due to AC being the more efficient way to transmit electricity over long distances. However, DC is better suited to handle the load from solar and wind farms, as the electricity that is produced from those renewable energy sources starts out as direct current.
“Fossil Fuel” means hydrocarbons formed from the remains of dead plants and animals that have been converted to oil, coal, or natural gas by exposure to heat and pressure in the earth’s crust over millions of years. Due to the extremely lengthy formation process, fossil fuels are considered non-renewable energy sources.
“Fuel Cell” refers to a device that converts chemical energy into electricity. Typically this is accomplished by running a fuel source through the anode segment of the cell where a catalyst oxidizes the fuel into a positively charged ion and a negatively charged electron. The ions then pass through an electrolyte to the cathode segment of the cell, however, the electrons must pass through an external circuit to reach the cathode, generating an electric current in the process. At the cathode, the ion and the electron join with a third chemical with the help of another catalyst to create a waste product. In automobiles, hydrogen fuel is passed through the fuel cell and joins with oxygen from the air at the cathode to form water as the waste product.
“Geothermal Energy” is thermal energy from the earth. Geothermal energy is clean and sustainable, and can be sourced from hot water or steam reservoirs deep in the earth that are accessed by drilling, geothermal reservoirs located near the earth's surface, and the shallow ground near the Earth's surface that maintains a relatively constant temperature of 50°-60°F. An example of a geothermal energy system is a utility using the hot water and steam from reservoirs to drive generators and produce electricity for its customers.
“Grid” is a term used to identify the interconnected network that transports electricity from suppliers to consumers. This network includes power generation stations, transmission lines, and distribution lines.
“Incremental Energy Costs” are the costs of producing and transporting the next available unit of electrical energy. Short run incremental costs (SRIC) include only incremental operating costs. Long run incremental costs (LRIC) include the capital cost of new resources or capital equipment.
“Independent Power Producer” is a power production facility that is not part of a regulated utility.
“Investor-Owned Utility” or “IOU” is a private power company owned by and responsible to its shareholders.
“Kilowatt-hour” is a unit of energy that is most commonly known as a billing unit for energy delivered to consumers. The measurement represents the expenditure of one kilowatt for one hour.
“Least Cost Planning” is a method of power planning that recognizes load uncertainty, embodies an emphasis on risk management, and reviews all available and reliable resources to meet future loads. It takes into consideration all costs of a resource, including capital, labor, fuel, maintenance, decommissioning, known environmental impacts, and the difficulty in quantifying the consequences of selecting one resource over another. Least cost planning seeks to minimize total energy costs.
“Load” can refer to the amount of electrical power required at a given point on a system or the average demand on electrical equipment or on an electric system.
“Methane” is a colorless, odorless flammable gas that is the main component of natural gas.
“Methanol”, also known as “methyl alcohol” or “wood alcohol”, is a toxic, colorless, volatile flammable liquid alcohol, originally made by distillation from wood and now chiefly by oxidizing methane. Methanol can be used as a fuel either directly or in the manufacture of biodiesel.
“Net Metering” is a system that allows a residential or commercial customer to transfer surplus power from a proprietary renewable energy system onto the public utility grid, thereby allowing the customer to offset the cost of power drawn from the utility.
“Passive Solar Energy System” is a solar heating or cooling system that uses natural energy flows to transfer heat.
“Photovoltaic” means capable of producing electricity when exposed to radiant energy, especially light. A photovoltaic system employs solar panels composed of a number of solar cells containing photovoltaic material.
“Public Utility District” or “PUD” is a publicly owned energy producer or distributor. PUDs operate as special government districts under the authority of elected commissions. They are not regulated by public utility commissions. PUDs exist only in the states of California, Oregon, Nebraska, and Washington.
“PURPA” or “Public Utility Regulatory Policies Act” is a federal law requiring a utility to buy the power produced by a qualifying facility at a price equal to that which the utility would otherwise pay if it were to build its own power plant or buy power from another source.
“Qualifying Facility” or “QF” is a power production facility that qualifies for special treatment under PURPA. A qualifying facility must generate its power using cogeneration, biomass, waste, geothermal energy or renewable resources, such as solar and wind. PURPA prohibits utilities from owning majority interest in qualifying facilities.
“Renewable Energy Source” is a source of energy that is derived from natural resources that can be replenished, such as sunlight, wind, tides, geothermal heat, and others.
“Salvage Logging” is the practice of logging trees in forest areas that have been damaged by wildfire, flood, severe wind, disease, insect infestation, or other natural disturbance.
“Slash” is a term that refers to coarse and fine woody debris generated during loggings, including tops, limbs, and cull sections. It is often considered unmarketable.
“Therm” is a unit of heat equivalent to 100,000 Btu or 1.055 × 108 joules. Therms are most often used with natural gas.
“Transmission” is the process of long-distance transport of electrical energy, generally accomplished by raising the electric current to high voltages. Transmission lines are often necessary to transport energy from power plants to the distribution companies.
“Turbine” is a machine for producing continuous power in which a wheel or rotor, typically fitted with vanes, is made to revolve by a fast-moving flow of water, steam, gas, air, or other fluid.
“Turnkey System” is a system which is built, engineered, and installed to the point of readiness for operation by the owner.
“Watt” is the common base unit of power in the metric system. One watt equals one joule per second. It is the power developed in a circuit by a current of one ampere flowing through a potential difference of one volt.