Wind Power Financial Benefits

The United States Government is rewarding those who invest behind renewable energy systems through a number of financial incentives.  To see what is available in your state, click here.

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.

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 encourage development of small-scale, locally produced projects. States have established similar production incentives for ethanol or other biofuels.

As an example, 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.

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.

Revolving Loan Funds
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.

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.

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 evaluated. This may occur independent of electric industry structure and regulation, and would help stimulate individual investment in small turbines.