Production Tax Credit
Like other domestic energy sources, American wind power needs a stable, pro-growth tax policy. The Production Tax Credit (PTC) and the Investment Tax Credit (ITC) are meant to keep wind energy attractive for the investors who finance new wind farms as demand for clean fuel sources continues to increase. The PTC is currently worth 2.3 cents for every kilowatt-hour of electricity generated for the power grid. These tax credits benefit American consumers by growing our economy, creating jobs, improving energy security, saving money for families and businesses, and supporting a new U.S. manufacturing sector.
Importance of tax credits to expanding wind energy
With the help of the PTC and ITC, U.S. wind farms now provide enough power for 20 million American homes and attract billions in private investment to the U.S. economy each year, boosting economies in all 50 states. The PTC and ITC continue to improve wind turbine technology, stabilize electricity rates, and encourage development of renewable energy projects. The PTC alone has helped to more than quadruple U.S. wind power since 2008, and has helped drive down the price purchasers pay for wind by two-thirds over six years.
Stable policy is driving growth
The FY16 Omnibus Appropriations Bill, passed on December 18, 2015, included a five-year extension and phase-down of the Renewable Electricity Production Tax Credit, as well as the option to elect the investment tax credit for wind energy. AWEA, with the essential support of our members and partners, led this effort for greater credit stability and pushed for an extension of the PTC and ITC to improve predictability.
After more than two decades of uncertainty, the bill ensures five years of predictable policy. We believe this stable outlook will spur new investment into the 2020s. The extension of the tax credit will play a vital role in meeting the 20 percent by 2030 scenario outlined in the Department of Energy’s “Wind Vision” report.
Summary of the PTC extension and phase-down
The PTC will drive more wind development– especially as utilities, Fortune 500 companies and municipalities seek more low-cost emission-free renewable energy. The tax credits, extended through 2019, begin phasing down by 20 percent each year beginning in 2017. Here are the legislation’s details:
- For the PTC (Sec. 301 of the bill), wind projects that started construction in 2015 and 2016 receive a full value PTC. For projects that begin construction in 2017, the credit is at 80 percent of full value; in 2018, 60 percent PTC; and in 2019, 40 percent PTC.
- Similarly, for the ITC election for wind energy (Sec. 302 of the bill), projects that started construction in 2015 and 2016 are eligible for a full 30 percent ITC; for 2017, a 24 percent ITC; for 2018, an 18 percent ITC; and in 2019, a 12 percent ITC.
- As before, the rules will allow wind projects to qualify as long as they start construction before the end of the period.
At AWEA, we will work diligently with our partners and champions to foster investment in rural communities and employment in American factories.
History of the Wind Production Tax Credit
Sen. Chuck Grassley (R-IA) originally authored the PTC. It was enacted as part of the Energy Policy Act of 1992, helping launch the wind industry as we know it. The first lapse of the credit occurred seven years later in 1999, causing a near halt in production. Since then, Congress has cycled through tax credit in one or two-year stints, and allowed it to expire multiple times. This cyclical pattern has resulted in boom-bust cycles of development. Currently, the PTC is extended through 2019 thanks to strong bipartisan support, supplying much-needed long-term policy certainty.
What's next for wind energy tax credits?
With red and blue state support, the PTC phasedown is a done deal. Thanks to policy certainty, 20 gigawatts of wind power capacity are now under construction or in advanced development. With the PTC in place, wind energy can grow to supply 20 percent of U.S. electricity by 2030 and support 380,000 well-paying jobs.