Senate extends energy tax credits in housing bill

WASHINGTON (Reuters) - The U.S. Senate voted on Thursday to include in a housing rescue bill an extension of tax incentives that encourage renewable energy production and investments to reduce energy use.

A tax credit would be extended for one year through 2009 for producing electricity from wind, biomass, hydropower and geothermal facilities.

Businesses and homeowners would also be able to offset 30 percent of the cost of installing solar or fuel cell equipment with a one-time tax credit.

The energy measure was approved by an 88-to-8 vote.

Extending the tax credits would ensure that up to $20 billion in planned renewable energy projects and investments go forward, the measure's sponsors said.

"These incentives are necessary for our energy security and to help jumpstart our economy," said Republican Sen. John Ensign of Nevada, who co-sponsored the energy proposal with Democrat Maria Cantwell of Washington.

Shares of several solar power companies soared last week when the energy proposal was unveiled.

Tax credits were also extended for homeowners who install energy-efficient furnaces, windows and insulation. Builders would get a tax deduction for constructing energy-efficient homes, as would businesses for making energy-efficient improvements to commercial buildings.

Manufacturers would get tax credits to help lower their production costs for making appliances that use less energy.

The environmentalist group Sierra Club welcomed the Senate's action, saying it would help the weak U.S. economy. "It would be difficult for taxpayers to find an investment that offers a better return," the group said. "This package of incentives will pay us environmental and economic dividends for years to come."

The Senate overwhelmingly approved the underlying housing bill on Thursday. The bill now goes to the House of Representatives, which is developing a narrower tax-focused housing rescue plan.

Legislation to extend the renewable energy and investment tax credits for a longer period was approved by the House in a separate bill in February. Unlike the Senate, the House wants to pay for those extensions by taking away billions of dollars in tax credits from big oil companies.

The American Wind Energy Association said it would work with House members to win passage of the Senate's bill. "Every day of delay tolls a greater risk on investments in new clean energy projects and manufacturing facilities," the group said.

(Reporting by Tom Doggett and Kevin Drawbaugh; Editing by Lisa Von Ahn and John Wallace)