Summary of Federal Subsidies to Wind Power

According to the Energy Information Administration (EIA) Report, "Federal Financial Interventions and Subsidies in Energy Markets, 2007:"

In 2007, the Federal Government subsidized coal 0.04 cents per kilowatt hour. Coal generated 1,946 billion kilowatt hours. And received 854 million in subsidy and support.

In 2007, the Federal Government subsidized wind 2.34 dollars per kilowatt hour. Wind generated 31 billion kilowatt hours. And received 724 million in subsidy and support.

In 2007, the primary source of subsidy was the Production Tax Credit (PTC), which provided a tax credit of 2.1 cents per kilowatt hour produced.

American Recovery and Reinvestment Act (ARRA) of 2009

ARRA opened new opportunities for growth in the wind power industry. The Act:

1.Extends the Production Tax Credit (PTC) sunset date for wind energy projects from December 31, 2009 until December 31, 2012. To qualify for the PTC, a wind energy project must be “placed in service” on or before that date. Any qualifying project that meets the placed-in-service requirement will qualify for a credit (indexed for inflation) per kilowatt hour of electricity generated and sold to an unrelated person during each year of the 10-year period beginning on the date the project is originally placed in service. For 2009, the amount of the credit is 2.1¢ per kilowatt hour.

2.Provides the option to claim Investment-Based Tax Credit (ITC) rather than PTC. ARRA allows a taxpayer eligible to claim the PTC for a wind energy project to claim an ITC in lieu of the PTC. This option applies to wind energy facilities that are placed in service from January 1, 2009 to January 1, 2012. The entire amount of the ITC is available for the year in which a qualifying facility is placed in service. The credit equals 30% of the cost of the facility. Any unused portion of the credit can be carried back one tax year and carried forward up to 20 tax years. The owner of a qualifying facility can elect to claim either the ITC or the PTC, but not both. The tax basis of the facility must be reduced by one-half of the credit claimed. ARRA also eliminates the reduction of a project’s tax basis (for the purposes of calculating the ITC) if it was financed through subsidies or tax-exempt bonds.

3.Provides the option to receive a cash grant in lieu of ITC. To help “monetize” the ITC, or get liquidity in the market, ARRA enables taxpayers (that are otherwise eligible to claim the ITC) to choose to receive a cash grant from the U.S. Treasury Department instead of claiming the ITC. To qualify, the project must be placed in service during 2009 or 2010 or, if construction began in 2009 or 2010, before January 1, 2013. The grant is not available to any governmental agency, tax-exempt entity, or rural electric cooperative. Applications must be submitted before October 1, 2011. These grants generally function the same way as the ITC. The amount of the grant generally is 30% of most of the cost of the facility. A grant is not included in the taxable income of the recipient, but the tax basis of the facility is reduced by one-half of the amount of the grant. The Treasury Department must pay the grant by 60 days after the later of: (a) the date of the application or (b) the date the facility is placed in service. ARRA contains a specific provision appropriating “such sums as necessary” to make sure that funds will be available to pay grants on all qualifying projects.

4.Extends “bonus depreciation” to 2009. ARRA extends first-year bonus depreciation for qualifying equipment placed in service in 2009, allowing the project owner to recover the costs of capital expenditures faster than the regular depreciation schedule. Under the bonus depreciation rule, an owner of qualifying property can write off 50% of the adjusted basis of the assets (such as turbines, towers, etc.) placed in service in 2009. The remaining 50% of the adjusted basis of the property is depreciated over the regular tax depreciation schedule applicable to the property.

5.Provides an “Advanced Energy Facilities Investment Credit.” ARRA creates a new 30% tax credit for investment in property used in a "qualified advanced energy manufacturing project," i.e., a project which establishes, re-equips, or expands a manufacturing facility that produces products used in the production of energy from renewable sources, including wind. The total amount value of credits available under the program is $2.3 billion. Projects will be selected based on a reasonable expectation of commercial viability, innovation, job stimulation, and environmental benefits. To receive the credit, projects must be certified by the Treasury Secretary in consultation with the Energy Secretary. Credits will be awarded through an application process. Treasury must announce requirements for the application by August 16. Applicants have three years from the date of the award to place the project in service.

Special Benefits to Grantees Under ARRA

According to the report titled “Payments for Specified Energy Property in Lieu of Tax Credits under the American Recovery and Reinvestment Act of 2009” released by the United States Treasury Department Office of the Fiscal Assistant Secretary, July, 2009, ARRA also provides the following special benefits to those wind power facilities electing to take the cash grant rather than the tax credits:

1."Federal payment does not make the property subject to the requirements of the National Environmental Policy Act and similar laws."

Generally, federal laws such as the National Environmental Policy Act, National Historical Preservation Act, and Endangered Species Act are automatically “triggered” when projects are federally-funded. In practice, this provision amounts to the granting of a sweeping exemption from federal regulation.

2."Federal payment does not make the property subject to the requirements of the Davis-Bacon Act."

The Davis-Bacon Act is a 1930s-era law which mandates the payment of prevailing wages for public works projects. In practice, this means that wind power projects are exempt from federal law requiring them to pay fair wages to construction crews.

3.“Federal payment is not includable in the gross income of the applicant.” The payment is exempt from income taxation.

4.Payments may be made to third parties.