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 Financial
Incentives
Small wind energy systems carry substantial
upfront capital costs, but states can do a lot to make them more
affordable. Many offer at least some of the incentives discussed
below. To see which incentives are available (or lacking) in your
state, see AWEA's
state-by-state pages.
Investment
and Production Tax Credits
Tax credits for renewable energy projects
can support investment by enhancing after-tax cash flows. Historically,
investment tax credits (ITC) have been one of the predominant
approaches taken at the state and federal levels to stimulate
renewable energy development.
State ITCs reduce the state income tax
burden of wind power investors. The credit allows investors to
reduce their tax obligation by some portion of the amount invested
in a wind project. The tax credit can be designed to be used only
in the first year of production, or it can be spread over a number
of years. (National
Wind Coordinating Committee State Policy Options, p. 25)
A federal wind energy production tax credit
(PTC) currently provides a credit of 1.8 cents per kilowatt-hour,
available for the first 10 years of a wind generator's operation.
Congress extended the federal PTC in 2002, but it will expire
December 31, 2003, unless it receives another extension.
Production
Incentives
The federal Renewable Energy Production
Incentive provides cash payments to project owners based on the
number of kilowatt-hours they generate. Some utilities use production
incentives to spur development of small-scale, locally produced
projects (See Markets
for Green Power page.) States have established similar production
incentives for ethanol or other biofuels. Paying for performance,
rather than installed capacity, is a good way to ensure quality
projects.
For Example:
(1)The Chelan County (Washington) Public Utility District’s
Sustainable
Natural Alternative Power program (SNAP) promotes projects
within the PUD’s service territory. Two 10-kilowatt wind
turbines and four solar projects have been installed through the
program since its inception in August, 2001. The utility pays
a premium rate for the electricity (up to $1.50/kilowatt) that
is based on total annual customer contributions to SNAP. A SNAP
starter program is available to other utilities.
(2)The Orcas Power & Light Cooperative
(OPALCO) Green Energy
Program provides upfront payments for small wind turbine installations
based on expected generation during the first year. Producers
also receive a production incentive based on output in subsequent
years. The OPALCO program has achieved the third highest customer
participation rate in the nation and currently has one small wind
turbine participating along with three micro-hydro projects and
14 solar installations.
Grants and Rebates
A
direct cash payment gives wind project owners additional benefits
compared to an equivalently sized tax incentive. First, the inability
of some investors to absorb the full value of a tax credit is a
substantial barrier to the effective use of tax incentives to support
renewable energy development. A direct cash payment has no similar
problems. Direct cash payments can be made even more powerful through
cost-sharing, where the government pays part of plant or wind system
costs directly, because the private investor would not pay taxes
on the cost-shared portion.
Investment incentives are valuable in reducing the effective capital
cost of renewable projects. Grants may be more appropriate for on-
and off-grid, small-scale systems in which most of the power produced
is used on-site. Compared with a yearly production incentive, a
grant might be a more efficient support mechanism for small-scale
wind installations, even those that are grid-connected. (National
Wind Coordinating Committee State Policy Options, pp. 45-46)
Model: View
the attached language
For Example: Illinois'
Renewable Energy Resources Program leverages funds collected
by utilities to provide financial support for renewable energy projects.
The program will pay up to 60 percent of installation costs.
California's Emerging Renewables Program offers cash rebates
worth up to $2.30 per installed watt of capacity (i.e., $23,000
for a 10-kw system) for qualifying projects.
Revolving
Loan Funds
Debt costs
significantly affect the levelized cost of energy from wind power
systems. Smaller-scale (residential, agricultural or commercial)
renewable energy facilities can be affected even more than utility-scale
projects by loan terms and conditions because of the higher installed
cost per unit of capacity of smaller systems. Private bank loan
terms and conditions for these smaller renewable facilities are
likely to be even more costly and restrictive than for larger-scale
systems.
State governments can provide low-cost capital to renewable energy
projects to support their development. This can be done directly
through a state agency or by making arrangements with private lending
institutions, local authorities or electric utilities. Direct loan
programs have taken and can take many shapes, including economic
development bonds, government and utility loans, community development
programs and green bonds. These programs can be used to support
renewables by providing lower cost debt than is available in the
private markets (i.e., lower interest rates or terms that are more
favorable). For smaller-scale systems, these programs also may reduce
the transaction costs of arranging a private loan. (National
Wind Coordinating Committee State Policy Options, p. 50)
Model: View
the attached language
For Example: Iowa's
Alternate Energy Revolving Loan Program provides loan funds
equal to 50 percent of the total financed cost of a project (up
to $250,000) at 0% interest.
Sales
Tax Reductions
Wind
generators involve high capital costs but no fuel costs, causing
their sales tax burden to be higher per kilowatt-hour than those
placed on fossil fuel-fired facilities. This is because the fuel
used by power plants is generally exempt from sales taxes, whereas
sales tax must be paid on almost all of a wind energy investment
-- turbines, towers, and other equipment. Reducing or exempting
renewable energy facilities from sales taxes would place them on
a more fair and competitive footing. These same sales tax incentives
could also be applied to small-scale residential wind systems. Tax
exemptions are the purview of state legislatures. The enactment,
implementation and enforcement of such policies may occur independent
of electric industry structure and regulation.
Model: View
the attached language
For Example: Iowa
and Minnesota
exempt from the state sales tax the total cost of wind energy equipment
and all materials used to manufacture, install or construct wind
energy systems.
Property
Tax Reductions
Residential
renewable energy systems are assessed as property improvements and
can significantly drive up a landowner's tax liability. Local and
state authorities can exempt residential systems from property taxes
more applicable to utility-scale wind projects, or change the way
they are valuated. This may occur independent of electric industry
structure and regulation (National
Wind Coordinating Committee State Policy Options, pp.32-33),
and would help stimulate individual investment in small turbines.
(National
Wind Coordinating Committee State Policy Options, Table 9, p. 34)
Model: View
the attached language
For Example: Illinois
allows solar energy systems to be valued the same as home heating
or cooling systems for property tax purposes
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