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small wind
Small Wind Toolbox
 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
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.
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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. 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.
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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.
Model: View sample language of a rebate program
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.
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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.
Model: View sample language of a revolving loan program
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.
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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 sample language of sales tax code
For Example: Iowa and Minnesota are 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.
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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, and would help stimulate individual investment in small turbines.
Model: View sample language of property tax code
For Example: Illinois allows solar energy systems to be valued the same as home heating or cooling systems for property tax purposes.
Resources:
- National Wind Coordinating Committee State Policy Options, pp.32-33; 34)
http://www.nationalwind.org/publications/statepolicy/chapter4.pdf
- DSIRE database for state incentives for renewable energy
http://www.dsireusa.org
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