Production Tax Credit for Renewable Energy
UCS is continuing to work with our coalition partners to extend and revise tax incentives for renewable energy that help boost development of clean renewable electricity, not polluting energy sources.
Companies that generate wind, geothermal, and “closed-loop” bioenergy (using dedicated energy crops) are eligible for a Production Tax Credit (PTC), which provides a 2.2-cent per kilowatt-hour (kWh) benefit for the first ten years of a renewable energy facility's operation.
Other technologies, such as "open-loop" biomass (using farm and forest wastes rather than dedicated energy crops), efficiency upgrades and capacity additions for existing hydroelectric facilities, small irrigation systems, landfill gas, and municipal solid waste (MSW), receive a lesser value tax credit of 1.1 cents per kWh.
The production tax credit for wind expired at the end of 2012, but was extended by Congress a few days later (see more below). The PTC for incremental hydro, wave and tidal energy, geothermal, MSW, and bioenergy is in place until the end of 2013.
The PTC and Wind
Combined with state renewable electricity standards, the PTC has been a major driver of wind power development over the past decade. It provides a 2.2 cent per kilowatt-hour tax credit for the first ten years of electricity production from utility-scale turbines. But Congress has repeatedly gone back and forth between expiring and extending the PTC.
Originally enacted as part of the Energy Policy Act of 1992, Congress has extended the provision five times and has allowed it to sunset on four occasions. This "on-again/off-again" status contributes to a boom-bust cycle of development that plagues the wind industry. In the years following expiration, installations dropped between 73 and 93 percent, with corresponding job losses (see Figure below).
Sources: Compiled by UCS based on data from DOE 2012, EIA 2012.
The cycle begins with the industry experiencing strong growth in development around the country while the PTC is firmly in place, and in the years leading up to the PTC's expiration. Lapses in the PTC then cause a dramatic slowdown in the implementation of planned wind projects and layoffs at wind companies and manufacturing facilities. Upon restoration, the wind power industry takes time to regain its footing, and then experiences strong growth until the tax credits expire. And so on.
Short-term extensions of the PTC are insufficient for sustaining the long-term growth of renewable energy. The planning and permitting process for new wind facilities can take up to two years or longer to complete. As a result, many renewable energy developers that depend on the PTC to improve a facility's cost effectiveness may hesitate to start a new project due to the uncertainty that the credit will still be available to them when the project is completed.
Last-minute PTC extensions don’t serve anyone well either. The pending uncertainty threatens access to financing and stalls plans for development, jeopardizing the tens of thousands of jobs in the industry.
Congress Extends PTC as Part of Fiscal Cliff Deal
On January 2, 2013, Congress temporarily extended the PTC for wind as part of the fiscal cliff bill. The bill also includes an important new provision that allows wind and other eligible renewable energy projects that begin construction in 2013 to qualify for the credit. Previous law required eligible projects to be in-service and operating by the end of the calendar year when the credit was set to expire.
The bill also allows wind and other eligible renewable energy sources to qualify for a 30 percent investment tax credit in lieu of the PTC for facilities that begin construction in 2013 and excludes the use of commonly recycled paper in MSW and bioenergy facilities.
