One of the biggest obstacles to the wind energy production tax credit's (PTC) renewal is the cost to taxpayers. However, a new report shows that the government could sustain support for wind power at a much lower cost to taxpayers by replacing the current tax credits with cash incentives.
A taxable cash incentive for wind energy could deliver the same support to wind projects as current policy and almost halve the cost to taxpayers, according to the new study, which was released the Climate Policy Initiative (CPI), a not-for-profit group.
CPI's report shows that federal wind and solar incentives bridged roughly half the gap between the costs of renewable electricity generation and electricity-market prices for wind and solar projects financed in 2010.
Assuming that current federal policies are sustained, performance and technology improvements mean that the average wind project financed in 2013 would be nearly viable through federal incentives alone, while solar projects would still require some state support.
According to the report, current federal tax incentives are not a cost-effective way to support renewable energy because most project developers don't have enough tax liability. As a result, they employ tax-equity partners at additional cost. With cash incentives, developers don't need tax-equity partners, so the system becomes more cost-efficient.
The report recommends two changes to federal wind and solar incentives:
1. Extend the wind energy PTC and deliver it as a $21/MWh taxable cash incentive. This would have the same value to projects, reduce inefficiencies and cut government costs by almost half for every unit of clean electricity generated.
2. Give solar photovoltaic projects the option to take a 20% Section 1603 cash grant in lieu of the current 30% investment tax credit. This would simultaneously reduce government costs while better supporting solar energy projects.
"[K]ey policies are set to expire just when lawmakers are looking for ways to reduce the deficit," notes Kath Rowley, director of CPI's U.S. office. "The good news is that our analysis finds a sweet spot: Small changes in federal policies could deliver big savings for taxpayers and, at the same time, sustain growth in the renewable energy sector.’
The report bases its findings on analysis and modeling of renewable energy projects developed in the U.S. over the past four years, including project costs and timelines, project performance and project financial structures.
The full report can be viewed here.
