by John Farrell, via Energy Self Reliant States
Since it will take a battle to extend federal tax credits for wind power anyway, why not make community wind development easier at the same time?
Last month, President Obama’s Treasury Department released proposed reforms to a number of business taxes including the federal Production Tax Credit (PTC) for wind power projects. The reform proposal would make the tax credit permanent, but more importantly, it would make it refundable.
A regular tax credit reduces the amount of taxes a business or person pays dollar for dollar, down to zero. In the case of the PTC, it provides 2.2 cents for every kilowatt-hour produced by the wind power project, over 10 years. But for the many individuals and businesses that don’t owe a lot of taxes, they have limited use. That’s why there’s an entire “tax equity industry” made up of large banks and Wall Street firms that partner with wind and solar developers to reduce their tax bills. The drawback of these partnerships is that as much as half of the tax credit’s value is consumed by the Wall Street firms and not the renewable energy project.
With a refundable tax credit, wind and solar project owners wouldn’t require big tax bills or Wall Street to finance projects. Instead, any participant in a community renewable energy project would receive a check equal to the tax credit’s value.
The implications are significant. The South Dakota Wind Partners project, for example, collected over 600 owners for 7 wind turbines, thanks to a temporary option to take the federal PTC as a cash grant. Brian Minish, who helped develop the South Dakota Wind Partners community wind project, says that a refundable tax credit will similarly make a community wind project easier: “The refundable PTC is much better then the current PTC structure in that we don’t need to find tax equity investors and we don’t need to pay them a premium return. This would allow more common investors to participate in community wind projects!”
Since community-owned wind projects create up to twice the jobs and over three times the local economic impact compared to absentee-owned projects, small policy changes that make community ownership easier can have a big impact.
There are other solutions afoot for community wind, including the Community Wind Act. This U.S. Senate bill would allow distributed wind projects – 20 megawatts and smaller – to take the upfront Investment Tax Credit instead of the PTC. The change provides one big advantage: community wind projects have a harder time getting capital, so upfront cash helps secure financing.
Legal and tax barriers have created an uphill struggle for community ownership of renewable energy, so it’s nice to see improvements on the radar of the Obama administration and in Congress.
John Farrell is an Institute for Local Self-Reliance (ILSR) senior researcher specializing in energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy.
This piece was originally published at Energy Self-Reliant States and was reprinted with permission.
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John,
You really need to be advocating a Feed-In Tariff (FIT) system, and cut the crap out with regards to avoided taxes. The reason Germany is a world leader in wind energy despite their generally pathetic (compared to the US and Canada) wind resource is that it is actually profitable to sell electrcity to the grid becuase the price that generators get is equal to a socially arrived at average COST to make it plus an allowable profit rate – and usually a profit rate so low as to be beneath contempt, corporate wise (who won’t consider anything less than a 15% ROI). Of the approximately $US 70 BILLION in wind turbine investments, over half are community owned – by farmers, cooperative, groups of small business people, partnerships that own between 1 to 5 commercial scale (not toy turbines). FITs work better than any other system tried, including tax avoidance brides to rich people. They work very well for community scale wind.
To do this, a 132 word segment needs to be added to Section 210 of the 1978 PURPA Law. Zero cost to tax payers, and then the matter gets devolved to the states.
The Section 1603 grants were a big hit, but again, then really only applied to “PTC worthy” projects. Even when the PTC was slightly more profitable, developers took the 1603 grants, becuase it was 30% of the project cost up front. And you could still use the all important rapid depreciation (MACRS) which is worth MORE than the PTC, and 70% of that gets back to the developer in 3 years.
But now we are faced with a far nastier problem that really has very little to do with artificially low natural gas prices, despite the popular buzz on that. This is collapsed electricity pricing. Where I live, electricity generators are getting paid about 2 cents/kw-hr, and NOBODY is making money on that one except the New York Power Authority (NYPA) via their fully depreciated ginat hydroelectric facilities (with actual production costs of less than 0.2 cents/kw-hr). Even with refundable tax credits for community wind, you wold go bamkrupt pretty fast and lose your multimillion dollar per turbine investment when you can’t make the payments on your turbine. And no banker would loan you low cost money if they find that you don’t have a long term Power Purchase Agreement (PPA) with a fixed price for the electricty generated for at least 20 years. No long term low cost loan money means higher cost of production, where prices before subsidies need to be 6 to 12 cents/kw-hr, before you even consider any profits. And we want turbine owners to make a profit and pay taxes on those profits.
So, your “average person” tax avoidance scheme will do zip to help most people who want to install thee awesome, newly developed Low Wind Speed Turbines that run between $4 to $5 million each, installed. What will help,is stable prices that are based on the cost to actually make electricty, and not based on what pollution based highly subsidized generators happen to be selling or dumping their electricty for at any given hour.
See http://www.wagengineering.blogspot.com/2012/04/progress-getting-efficient-with-low.html for a bit more on LWST…
DB
Excellent post. Infact Wind farm co-operatives is the best way for Community participation in Wind.
Here is a review of Wind Turbine co-operatives in different countries.
Wind turbine cooperatives – Origin from Denmark
To encourage investment in wind power, families were offered a tax exemption for generating their own electricity within their own or an adjoining commune. While this could involve purchasing a turbine outright, more often families purchased shares in wind turbine cooperatives which in turn invested in community wind turbines.
The role of wind turbine cooperatives is not limited to single turbines. The Middelgrunden offshore wind farm – with 20 turbines the world’s largest offshore farm at the time it was built in 2000 – is 50% owned by the 10,000 investors in the Middelgrunden Wind Turbine Cooperative, and 50% by the municipal utility company.
By 2001 over 100,000 families belonged to wind turbine cooperatives, which had installed 86% of all the wind turbines in Denmark. By 2004 over 150,000 were either members or owned turbines, and about 5,500 turbines had been installed, although with greater private sector involvement the proportion owned by cooperatives had fallen to 75%.
Australia
The Hepburn Wind Project is a wind farm at Leonards Hill near Daylesford, Victoria, north-west of Melbourne, Victoria. It comprises two 2MW wind turbines which produce enough power for 2,300 households.
Canada
A number of community wind projects are in development in Ontario but the first project that is likely to obtain a FIT contract and connect to the grid is the Pukwis Community Wind Park. Pukwis will be unique in that it is a joint Aboriginal/Community wind project that will be majority-owned by the Chippewas of Georgina Island First Nation, with a local renewable energy co-operative (the Pukwis Energy Co-operative) owning the remainder of the project.
Germany
In Germany, hundreds of thousands of people have invested in citizens’ wind farms across the country and thousands of small and medium sized enterprises are running successful businesses in a new sector that in 2008 employed 90,000 people and generated 8 percent of Germany’s electricity. Wind power has gained very high social acceptance in Germany, with the development of community wind farms playing a major role.
The Netherlands
The Netherlands has an active community of wind cooperatives. They build and operate wind parks in all regions of the Netherlands. This started in the 1980s with the first Lagerweij turbines. Back then, these turbines could be financed by the members of the cooperatives. Today, the cooperatives build larger wind parks, but not as large as commercial parties do. Some still operate self-sufficiently, others partner with larger commercial wind park developers.
United Kingdom
As of 2012, there are 43 communities who are in the process of or already producing renewable energy through co-operative structures in the UK. They are set up and run by everyday people, mostly local residents, who are investing their time and money and together installing large wind turbines, solar panels, or hydro-electric power for their local communities
United States
As of 2011, Iowa has just one community owned wind farm, that is Hardin Hilltop near Jefferson, Iowa. National Wind is a large-scale community wind project developer, with thirteen families of projects in development or operation. These projects have an aggregate capacity of over 4,000 MW. The vision of the company is to revitalize rural economies by promoting investment in domestic renewable energy resources. National Wind creates shared ownership with communities and allows them participation in decisions which are made.
In India also Wind Farm Co-operatives can be started.
A ‘Wind Fund’can be created by Government with contributions from Individuals paying Income Tax to get tax Exemption under Section 80 C.
This fund will invest in Community Wind Farms(Wind Turbine Co-operatives).
This way Wind and will become a mass movement.
Dr.A.Jagadeesh Nellore(AP),India
Wind Energy Expert
E-mail: anumakonda.jagadeesh@gmail.com