Wind developers have received a touch of good news, as the Internal Revenue Service (IRS) has announced that the federal production tax credit (PTC) for wind will be worth $0.023/kWh in 2013, up slightly from $0.022/kWh in 2012.
The PTC amount is adjusted each year for inflation. The IRS calculates the inflation adjustment and announces it each year on or around April 1. The adjustment also applies to other sources of generation such as closed-loop biomass and geothermal.
The IRS previously adjusted the PTC in 2010, when it raised the tax incentive to $0.022/kWh. Before that, the IRS raised the PTC to $0.021/kWh from $0.020/kWh in 2008.
‘This is good news for developers, as each hour of electricity generated by their qualified projects is slightly more valuable for tax credit purposes,’ says David Burton, a partner at law firm Akin Gump Strauss Hauer & Feld.
Additionally, the statute is written in such a way that the tax incentive automatically begins to phase out when energy prices are raised to a level where the PTC is thought to be unnecessary.
‘When the PTC was enacted, Congress wrote into the statute that the PTC would phase out automatically if electricity prices reach a high-enough level that a subsidy is no longer needed,’ explains Keith Martin, a partner at law firm Chadbourne & Parke.
According to Martin, the government looks at the average price at which contracted electricity from the same energy source was sold the year before.
‘The IRS said the average price at which electricity was sold last year at contracted wind farms was $0.0453/kWh. The credits would have started to phase out if electricity prices had been significantly higher. The IRS said prices would have had to have reached $0.1205/kWh last year before the phase-out would have started.’