Like other domestic energy sources, American wind power needs a stable, pro-growth tax policy. The Production Tax Credit (PTC) and the Investment Tax Credit (ITC) benefit American consumers by growing our economy, creating jobs, improving energy security, and supporting a new U.S. manufacturing sector. The credit is currently worth 2.3 cents for every kilowatt-hour of electricity generated for the power grid. These tax credits are intended to keep wind energy attractive for the investors who finance new wind farms as demand for low-carbon fuel sources continues to increase.
With the help of the PTC and ITC, U.S. wind farms now provide enough power for 16.7 million American homes and have attracted over $100 billion in private investment to the U.S. economy since 2008, fostering economic development in all 50 states. Additionally, the PTC and ITC continue to improve wind turbine technology, stabilize electricity rates, and encourage development of renewable energy projects. The PTC alone has helped to more than quadruple wind power in the U.S. since 2008 and has also helped drive down the cost of wind energy by 66%.
Success in 2015
AWEA, with the essential support of our members and partners, sought greater stability in the credits and pushed for an extension of the PTC and ITC for as long as possible. The FY16 Omnibus Appropriations Bill passed on December 18, 2015, includes a five-year extension and phase-down of the Production Tax Credit for wind energy and the option to elect the investment tax credit election for wind energy.
After many years of uncertainty, the bill ensures five years of predictable policy and we believe this stable outlook will spur new investment into the 2020s. The extension of the tax credit will play a vital role in meeting the 20% by 2030 industry goals set forth in this year’s “Wind Vision” report by the U.S. Department of Energy.
Summary of the extension and phase-down
Near-term prospects look strong and this plan will drive more wind development– especially as utilities, major end-use customers, and municipalities seek more low cost emissions-free renewable energy. That being said, there will be challenges to contend with. While the tax credits are extended through 2019, they will begin declining in value by 20% each year, beginning in 2017. Here are the details of the legislation:
- For the PTC (Sec. 301 of the bill), wind projects that commence construction in 2015 and 2016 receive a full value PTC. For projects that commence construction in 2017, the credit is at 80% of full value; in 2018, 60% PTC; and in 2019, 40% PTC.
- Similarly, for the ITC election for wind energy (Sec. 302 of the bill), projects that commence construction in 2015 and 2016 are eligible for a full 30% ITC; for 2017, a 24% ITC; for 2018, an 18% ITC; and in 2019, a 12% 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, our key focus will be preparing for the latter years of the agreement and we will work diligently with our partners and champions to address potential issues.
The extension and phase-down raises a variety of implementation issues that will need to be considered by the Treasury Department and Internal Revenue Service in subsequent guidance. As in past extensions, we need to act soon to achieve implementation clarity on a timely basis that drives as much wind development as possible.