Extending the Renewable Energy Tax Credit

The renewable energy tax credits expire at the end of 2008. 15 corporate green power buyers say these tax credits are absolutely critical, and are calling on Congress to renew them.

As background, the renewable energy tax credits–which include the production tax credit and the investment tax credit–are tax incentives designed to spur the development of certain kinds (see below) of green power. Currently, the production tax credit (PTC) amounts to 1.9 cents/kilowatt hour (kWh) for power generated in the first 10 years of a facility’s operation. That 10-year horizon is designed to make green power investments viable by making their production costs competitive with other generators on a per kWh basis. The investment tax credit (ITC) equals 30% of the capital costs of a project, with additional provisions for accelerated depreciation. The ITC has been a key driver for solar projects.

The Green Power Market Development Group (GPMDG) is a group of major U.S. companies that have been working on the demand side. Together this 15-member consortium of has so far purchased over 650 megawatts of green power projects–enough to power more than 487,000 homes–at more than 540 facilities in 35 states.

Nonetheless, there are limits to what can be accomplished on the demand side for green power, as the Green Power Group is well aware. The Group’s members have encountered a number of barriers that are limiting the number and kinds of green power projects that are currently feasible. That’s why they have sent a letter to Congress urging it to extend the renewable energy tax credits.

1. 5-10 year extension. There are many green projects in the pipeline, but these renewable energy tax credits are set to expire on December 31st, which throws a lot of uncertainty on the value of these investments. Just as problematic, past few extensions have just been for 1 or 2 years, and advocates have had to fight hard to get even those. That gives project developers only two years to install a project.
2. Cover all renewables equally. The 1.9 cent/kWh production tax credit applies only to wind, geothermal, solar, and closed-loop biomass projects. Less-known types like Open-loop biomass landfill gas, anaerobic digestion, and certain hydro projects, which also have potential, receive only 0.9 cents/kWh. The 1.9 cent level should apply to all renewable resources.
3. All credits to be transferable. Some green power facilities–for instance, those owned by public utilities–don’t qualify for the tax credits, The simple fix is to allow these credits to be transferred to a third party that can sufficiently use them.