Production Tax Credits: A Vessel for Clean Energy Growth

Editor’s Note: The Millennial Voices series is written by and for Millennials to foster nonpartisan discussion. Chad Dixon is an Operator at Viridity Energy. The opinions expressed in this commentary are solely those of the author.

Many states have independently adopted competitive and open energy markets, meaning consumers have the right to choose their electricity (or natural gas) providers regardless of their utility.

Combined with state-level Renewable Energy Portfolio standards, deregulation has decreased the price of electricity and increased the growth of renewable energy in the United States.

However, renewable energy sources are given different federal and state incentives and subsidies than fossil fuels: Production Tax Credits and Investment Tax Credits are examples of such incentives that were established by the Energy Policy Act of 1992.

Production Tax Credits (PTC) are administered on a per kWh basis of electricity production. The current structure appropriates $0.023/kWh for wind, geothermal, closed-loop biomass, and $0.011/kWh for other eligible technologies for the first 10 years of operation.

While the federal PTC policy expired in 2014 and has yet to be extended, the Investment Tax Credit can instead be claimed. Investment Tax Credits (ITCs) provide a rebate based on the type and initial cost of the project. Specifically, the IRS will refund 30% for solar, fuel cells, and small wind, and 10% for geothermal and microturbines.

Wind power companies claiming the ITC can only receive the incentive if their turbine is less than 100 kW. The average wind turbine produces 2-3 MW, over 20 times the maximum output to receive this tax credit.

States such as Iowa, Tennessee, Michigan, Maryland, and California, as well as others, have introduced state sponsored ITC‘s in addition to the federal incentives. However, none of these policies can foster the growth of wind power in the United States as effectively as the PTC.

A group of federal policymakers, led by Congressman Kenny Marchant (R-TX), is attempting to permanently repeal the PTC (H.R. 1901). According to POPVOX, the opposition to this bill is running at 95%.

Alternatively, the Senate Committee on Finance recently approved a tax extension bill that includes PTCs. If this bill is signed into law, then the PTC will be extended through 2016.

Extending the PTC would lower the risk for potential wind power investors and would attract more capital investments for the wind power industry.

More articles from Chad Dixon: A Millennial Path to a Clean Energy Future, America’s Institutional Energy Infrastructure

Chad Dixon is currently an Operator at Viridity Energy where he has since become a PJM Certified Generation Operator. Chad has previously worked at the Department of Energy and received his B.S. in Energy and Environmental Policy with a Concentration in Economics and Public Policy from University of Delaware.


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