A new report from Lawrence Berkeley National Laboratory reveals how the 30% investment tax credit (ITC) and cash grant equivalent have increased benefits for the development of Community Wind projects. “Revealing the Hidden Value that the Federal Investment Tax Credit and Treasury Cash Grant Provide To Community Wind Projects” analyzes the impact of new federal policies for wind farm investment incentives introduced this year as part of the U.S. economic stimulus program.
Historically, the production tax credit (PTC) has been the primary incentive for wind farm development, but the PTC requires passive income that only certain equity investors can leverage. The ITC and cash grant equivalent now available to qualified projects have reshaped the financial landscape for renewable energy development by lowering the hurdles for investors to obtain tax credits as well as providing cash grant equivalents for upfront capital. In addition, the American Recovery and Reinvestment Act of 2009 included provisions that eliminated the ITC's anti-double-dipping (or "haircut") provision for subsidized energy financing.
Lawrence Berkeley National Laboratory
Mark Bolinger, the report's author, argues that while the stimulus changes were intended for the wind energy markets in general, they have been a blessing in disguise for community wind project development in the United States.
“It stands to reason that community wind, which has had more difficulty using the PTC than has commercial wind, may benefit disproportionately from this newfound ability to choose among these federal incentives. This report confirms this hypothesis,” says Bolinger. “Just as important are a handful of ancillary benefits that accompany the 30% ITC and/or cash grant, but not the PTC. Many of these ancillary benefits—including relief from the alternative minimum tax, passive credit limitations, and certain PTC ‘haircuts’—circumvent barriers that have plagued community wind projects in the United States for years.”
The report compares two financing structures, the Strategic Investor Partnership Flip and the Cooperative LLC, finding that the “Strategic Investor Flip structure benefits significantly more from choosing the ITC over the PTC than it does from switching to the 30% cash grant. Meanwhile, the opposite is true for the Cooperative LLC structure, which does not benefit much from selecting the ITC over the PTC, but realizes a tremendous amount of value by choosing the 30% cash grant over the ITC.”
This report, “Revealing the Hidden Value that the Federal Investment Tax Credit and Treasury Cash Grant Provide To Community Wind Projects,” and others are available at the Electricity Markets and Policy Renewable Energy Publications section of the Lawrence Berkeley National Laboratory web site.
Lisa Daniels, Executive Director of Windustry, served as a draft reviewer for this report.