Production Tax Credit
With bipartisan support, the Renewable Electricity Production Tax Credit (PTC) phasedown is a done deal.
These tax credits have benefited 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. They have driven tens of billions of dollars into rural and Rust Belt America, and brought new jobs right to the places where they are needed the most. They are now being phased out on an 80-60-40 schedule, ending after 2019.
Thanks to this policy certainty, 18 gigawatts of wind power capacity are now under construction or in advanced development. With the PTC phasedown, wind energy can growing to supply 10 percent of U.S. electricity by 2020 and support tens of thousands additional well-paying jobs.
Like other domestic energy sources, American wind power has benefited over the years from a stable, pro-growth tax policy. The PTC and the Investment Tax Credit (ITC) were meant to keep wind energy attractive for the investors who financed new wind farms as demand for clean energy sources continues to increase.
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 24 million American homes and attract billions in private investment to the U.S. economy each year, boosting economies in all 50 states. The remaining value of the PTC and ITC can be seen in better wind turbine technology, lower electricity rates, and rural economic development. All this has more than quadrupled U.S. wind power since 2008, and has helped drive down the price purchasers pay for wind by two-thirds over seven years.
Stable policy is driving growth
The final extension of the PTC and ITC occurred in the FY16 Omnibus Appropriations Bill, passed on December 18, 2015, included a five-year extension and phase-down of the PTC, 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 ensured five years of predictable policy. The extension of the tax credit will play a vital role in staying on track for industry growth as outlined in the Department of Energy’s “Wind Vision” report.
Summary of the PTC and ITC extension and phase-down
The PTC and ITC has driven more wind development– especially as utilities, Fortune 500 companies and municipalities seek more low-cost, clean renewable energy. The tax credits, extended through 2019, have begun 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 of 2.3 cents per kilowatt hour. 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 cycled through the tax credit in one or two-year stints, and allowed it to expire multiple times. This cyclical pattern resulted in boom-bust cycles of development. The PTC phasedown agreed to in December 2015 was thanks to strong bipartisan support, supplying much-needed policy certainty.