Policy - Federal Level

PTC, ITC or Cash Grant? Which Should a Developer Use?

Lawrence Berkely National Laboratory (LBNL) and the National Renewable Energy Laboratory (NREL) have released a combined report that may help wind project developers understand which federal incentives will be most economical: PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States.

The report takes a close look at key provisions in the recent American Recovery and Reinvestment Act of 2009. These key provisions could have a significant impact on how renewable energy projects are financed in the near future.

Included in these provisions is an extension of the federal production tax credit (PTC). Another provision allows for projects that are eligible for the PTC to elect to receive a 30% investment tax credit (ITC) instead of the PTC. An even more intriguing provisions allows for a project that qualifies for the ITC (or the PTC but elects to receive the ITC) to receive the value of that credit as a cash grant from the Treasury.

The authors analyzed a number of technologies in the report including wind, open- and closed-loop biomass, geothermal and landfill gas projects. The purpose of the analysis is to both quantitatively and qualitatively analyze the choice between the PTC and ITC (or cash grant) from the project developer perspective. Only two technologies showed a clear preference for one incentive over the other: open-loop biomass gets more value from the ITC across the board, while geothermal gets more value from the PTC.

For wind energy, the authors looked at a range of installed costs from $1.500/kW to $2,500/kW and a range of capacity factors from 25% to 45%. They did not include the potential influence on project costs due to nameplate capacity in the presence of economies of scale. These quantitative results showed the PTC provided more value in approximately 2/3 of the cases analyzed.

The authors also looked at qualitative factors that can also influence the decision of which incentive a developer wants to use. These factors include: the option to elect the cash grant; performance risk; tax credit appetite; liquidity; subsidized energy financing; power sale requirement; and the owner/operator requirement. Combining the quantitative and qualitative considerations, the authors found that most wind projects may benefit more from the ITC than they will from the PTC.

As the report concludes, whether a particular project chooses the PTC or ITC or cash grant will depend on any number of factors that will be weighed by each project according to their priorities, and the fact that these choices for federal incentives now exist (temporarily) is a step in the right direction to broaden the participation base in renewable energy.

Click here to download and read the full report (19 pages)
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How Will Stimulus Bill Help Community Wind?

American Recovery and Reinvestment Act

Obama signs stimulus bill
President Obama signs American
Recovery and Reinvestment Act

Now that Congress has passed and President Obama has signed the American Recovery and Reinvestment Act of 2009, how will this help to stimulate Community Wind projects? According to Denise Bode, American Wind Energy Association CEO, "the stimulus bill contains a number of provisions aimed at helping our industry continue the very strong growth in new installations and new jobs we have seen over the past few years." Some of the provisions include:

  • 3-year extension of the federal wind energy production tax credit (PTC)
  • Option for a 30% investment tax credit (ITC) instead of the PTC
  • Option to convert the ITC into a grant for projects placed in service before 2013
  • Additional loan guarantees, bonds, and tax incentives

President Obama's goal with the stimulus package is to create a wide variety of initiatives to jumpstart the American economy. This opens up new sources of funding for renewable energy at a time when the Wind Energy industry is set for even more growth despite  being stalled by the economic downturn. These programs will allow Community Wind projects to take advantage of more funding opportunities.

“Over the next two years, this plan will save or create 3.5 million jobs. More than 90 percent of these jobs will be in the private sector, jobs rebuilding our roads and bridges, constructing wind turbines...”

President Barack Obama
Presidential Address to Congress
February 24, 2009

Wind facilities that qualify for the PTC can now make an irrevocable decision to take a 30% ITC in lieu of the PTC. In order to do so the project must be placed into service by December 31, 2012, and the PTC will no longer be available for the project. This has the potential to attract more investors who may not have enough passive activity income to realize the PTC. Which credit a taxpayer uses will depend upon an analysis of the project revenue and cost projections as well as analysis of the investor tax appetite. 

Further, if the project qualifies for the PTC or the ITC and is placed into service between 2009-2010 (or it begins construction at that time and is placed into service before 2013) the project can choose to apply to the Treasury Department for a cash grant that is equal to 30% of the qualified costs of the project. This cash grant is in lieu of both the PTC and ITC. This means the value of the ITC can be realized, even if the taxpayer cannot take advantage of the credit. The rules and application guidelines for this program have not been finalized yet.  

There are other provisions that address renewable energy financing on other levels. The Act removes the $4,000 cap on the small wind credit so taxpayers can now take the full 30% credit for a qualified small wind system.

The Act also provides for an additional $1.6 billion for Clean Renewable Energy Bonds (CREBs) that are used to finance renewable energy. There have been no announcements yet that applications are being accepted for these new allocations, and no guidance has been given on how the program will operate. Previously, these bonds have been given at 0% interest rate, and the bondholder receives a tax credit in lieu of bond interest. 

The Department of Energy received an extension of their authority to provide loan guarantees for qualified technologies under Title XVII of the federal Energy Policy Act of 2005 and an additional $6 billion for this program. Eligible technologies include electricity-generating renewable energy projects.   

Read more on the American Recovery and Reinvestment Act of 2009 Wind Energy Provisions at the Fredrikson & Byron P.A. web site and read how The Geniuses at DSIRE Translate the Energy Parts of the Stimulus Package via the Interstate Renewable Energy Council web site.

Along with this important step forward to make wind power and other renewables a catalyst for America’s economic recovery, the American Wind Energy Association has launched an effort to enact a national renewable electricity standard (RES) and to make progress toward construction of the Green Power Superhighway, a new transmission system needed to fully develop America’s immense wind resources. Read more about the AWEA New Wind Agenda.

Community Wind 101: A Primer for Policy-makers

Released by the 25' X 25' Alliance, The Energy Foundation and Harvesting Clean Energy, this report makes clear that community wind must be an integral part of the nation's energy strategy and lays out a set of public policies designed to grow local wind investment and ownership.

Specifically, Community Wind 101 finds:

  • Wind power economic benefits from local ownership can be multiplied in the range of two to three times or more compared to standard development models.
  • Community wind can play a pioneering role for all wind power and accelerate wind development by vastly diversifying the range of players who can invest.
  • Smaller investors cannot fully access federal tax incentives vital to wind development. Broadening the usefulness of these incentives and/or targeting incentives to community wind would significantly expand local investment and ownership opportunities.

You can access the excutive summary here and read the full report here.

USDA Farm Bill

2008 USDA Farm Bill

On May 22, 2008, Congress overrode the President's veto of the Food, Conservation, and Energy Act of 2008 (the "Farm Bill"). The Farm Bill is an investment in our nation's food and farm economy. It will ensure food security and promote healthier foods and local food networks, strengthen international food aid and reform commodity and farm programs, protect our natural resources and promote homegrown renewable energy.

The Farm Bill has historically addressed not only farm regulations, but also food security and protection of environmental resources. As our country seeks to reduce its dependence on foreign oil, our ranchers and farmers will continue to be vital players in the development and growth of renewable energy resources. Biofuels, wind energy, solar power and ethanol production are all addressed in the new Farm Bill 2008.

There are a total of 14 titles in the Farm Bill ranging from commodity programs to research to energy to insurance to nutrition. Renewable energy, specifically wind generated energy, is mainly addressed by 4 titles: Conservation, Rural Development, Research, and Energy.

Similar to the previous Value-Added Produce Grants and 9006 Programs, the 2008 Farm Bill will offer both grants and guaranteed loans for eligible projects under the Renewable Energy for America Program, or REAP. The USDA Rural Development website has information on applying and guidance documents for applications.

As a result of the delay in passing the 2008 Farm Bill, Congress has extended many of the programs from the 2002 Farm Bill including the Section 9006 Renewable Energy and Energy Efficiency Improvement Program. On March 6, 2008 the USDA annouced the availability of funding for these programs under Section 9006. The deadline for applications is June 16, 2008. The 9006 Forms for applications can be found here.


For the most up-to-date application information, contact your state Rural Energy Coordinator. Check back here for updates as they are announced and stay tuned to the USDA site for more information. Also, please see the attached "Farm Bill FAQ" pdf file.

Useful Resources for 2002 Farm Bill

Value-Added Producer Grant Program

Section 9006 Energy Title Grant Program:

"An American Success Story" (ELPC)

USDA Websites:

Farm Bill Section 9006

Value-Added Producer Grants

Previous Section 9006 Award Winners

2008 Award Winners and USDA 2008 Press Release

2007 Award Winners and USDA 2007 Press Release

2006 Award Winners and USDA 2006 Press Release

2005 Award Winners and USDA 2005 Press Release

2004 Award Winners and USDA 2004 Press Release

2003 Award Winners and USDA 2003 Press Release

 

More Information and Links

For more information about energy provisions in the Farm Bill:

--Environmental and Energy Study Institute- Energy and Agriculture Program
--Database of Renewable Energy Incentives- Renewable Energy Systems and Energy Efficiency Improvements Program summary
--North Dakota SEED- Farm Bill Energy Title resources
--Iowa Rural Development - Farm Bill

"Broadening Wind Energy Ownership by Changing Federal Incentives" from the New Rules Project

This April 2008 report from the New Rules Project discusses how simple changes to the federal production tax credit (PTC) and SEC registration process for cooperatives could significantly reduce barriers to community ownership of wind.

Download the report from the New Rules website here: http://www.newrules.org/de/ptc-wind-ownership.pdf

Webinar: The New Federal Tax Exempt Bonding Bill for Community Energy

The New Federal Tax Exempt Bonding Bill for Community Energy webinar was recorded on June 1, 2007.

The proposed Rural Community Renewable Energy Bonds Act (S. 672), introduced by Sen. Ken Salazar (D-CO) and Sen. Gordon Smith (R-OR), would provide tax exempt private purpose bonds to fund locally owned community energy projects, e.g. those under 40 MW with at least 49% local ownership. If enacted, this bill would give local community energy project developers a better alternative to federal renewable energy production tax credit funding.

To view just the slides from the presentations, click on the links in the list of speakers, below.


Speakers include:

John Covert
Executive Director, Colorado Working Landscapes (Introduction)
Presentation: Introduction

Lisa Daniels
Executive Director, Windustry (Moderator)
Presentation: Financing Locally Owned Wind Projects

Steve Black
Energy Advisor to Senator Salazar

Gregory Johnson
Partner, Patton Boggs, LLP
Presentation: New Financing Opportunities for Renewable Energy

Lee White
Executive Vice-President, George K. Baum & Company
Presentation: Financing Renewable Energy Projects

Andy Olsen
Environmental Law and Policy Center
Presentation: Next Steps

For more information about the Rural Community Renewable Energy Bond Act contact:

Lee White
Renewable Energy Finance Coalition (http://www.refcoalition.com)
303-292-1600
whiteml@gkbaum.com

Webinar Sponsored by:
Renewable Energy Finance Coalition
Environmental Law and Policy Center
Windustry

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