good government investments in renewable energy

8/3/2019 Good Government Investments in Renewable Energy

1/12

1 Center or American Progress | Good Government Investments in Renewable Energy

Good Government Investments

in Renewable EnergyFair, Effective, and Efficient Tax Policy Is Key

for Driving Renewable Energy Growth

Richard W. Caperton January 2012

Introduction

Budge decis drove he conversaion in Washingon in 2011 wih he daily news

dominaed by governmen shudown hreas, he super commitee, coninuing reso-

luions, and arcane budgeing pracices. Unorunaely, his le Americans convinced

ha governmen invesmens in he uure are o he able because o large ederal

budge decis ha need o be reduced.

Americans were misled. As he Cener or American Progress poins ou, he Unied

Saes can balance our budge, reduce our long-erm deb, and make key invesmens in

our uure all a he same ime. CAPs plan works oward a more vibran economy where

all Americans are beter o and clean energy is an inegral par o his uure. Bes o all,he invesmens ha governmen needs o make are relaively modes and can be paid

or by ending waseul spending in he same energy secor.

Tere is no doub ha Americans need clean energy because is vial o our naions

economic compeiiveness, securiy, and healh.

Tere is also no doub ha governmen will play an imporan role in making he

ransiion o clean energy.

Why? Because he ederal governmen always has beenand always will bea player in

energy markes. Te ederal governmen has made invesmens in energy or more han

a cenury, by graning access o resources on public lands, helping build railroads and

waerways o ranspor uels, building dams o provide elecriciy, subsidizing exploraion

and exracion o ossil uels, providing nancing o elecriy rural America, aking on risk

in nuclear power, and conducing research and developmen in virually all energy sources.

Teres no reason ha Washingon should sop making new invesmens.
http://www.americanprogress.org/issues/2011/05/budgeting_for_growth_twopager.htmlhttp://www.americanprogress.org/issues/2011/05/budgeting_for_growth_twopager.html


2/12


Considering he hisory, governmen invesmen has led o amazing developmens,

including universal access o reliable and aordable elecriciy, lasing economic devel-

opmen, and indusrial growh. Tis success sory alone could jusiy coninued govern-

men engagemen o vibran energy markes.

When we consider ha invesmens in clean energy are invesmens in Americas uure,

is clear ha he smar choice is o make hese invesmens o mee he nex genera-ion o energy challenges and o produce a oundaion o aordable, reliable, and clean

energy alernaives or uure waves o invesmen and opporuniy. A he same ime

we can no longer aord indiscriminae or waseul subsidies. I is essenial ha govern-

mens invesmens in energy be air, eecive, and ecien.

Tis issue brie examines how he governmen currenly invess in renewable energy, when

hose invesmens are eecive, and how hose invesmens should work in he uure.

Energy and the tax code

Te ederal governmen has a suie o ools a is disposal o make invesmens, includ-

ing cash grans, regulaory incenives, ax expendiures, and nancing suppors. When

properly designed and argeed, each o hese ools plays an imporan role.

In he energy secor mos governmen invesmen happens hrough he ax code.

Indeed, or energy companies ha receive ederal suppor, he mos imporan day o

he year is ax Day, when hey receive a large amoun o heir governmen benes.

In ac, 44 percen o energy spending in 2010 was hrough he ax sysem, wih he

remainder hrough oher ools.

Tere are boh good and bad reasons or his. Boh companies and he governmen

have an esablished sysem or paying and processing axes, so providing invesmens

hrough he ax code provides or ecien delivery o incenives by apping exising

inrasrucure and rules. More cynically, however, ax expendiures are an expedien

ha may be a cross-purposes wih good governmen pracice because hey are held

o dieren budge sandards han direc spending. Tis means ha working hrough

he ax code is less ransparen and hereore ar easier o pass hrough Congress wih

reduced budge scruiny.

Tese issues are discussed in deail in he CAP repor Governmen Spending Undercover:

Spending Programs Adminisered by he IRS by Lily Bachelder and Eric oder.

ax expendiures are governmen spending programs ha deliver subsidies hrough

he ax code via special ax credis, deducions, exclusions, exempions, and preeren-

ial raes. While he acual implemenaion can be complicaed, ax expendiures are
http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdfhttp://www.americanprogress.org/issues/2010/04/government_spending_undercover.htmlhttp://www.americanprogress.org/issues/2010/04/government_spending_undercover.htmlhttp://www.americanprogress.org/issues/2010/04/government_spending_undercover.htmlhttp://www.americanprogress.org/issues/2010/04/government_spending_undercover.htmlhttp://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf


3/12


economically he same as direc spending boh or he governmen and or beneciaries.

Wih direc spending, he governmen brings in ax money and hen spends i, while

wih ax expendiures he governmen simply reduces he axes ha a company owes.

Eiher way, he company has more money and he ederal governmen has less.

Tax expenditures should be held accountable for achieving results

Te underlying reasons or so much energy spending being done hrough he ax code

are unlikely o change, a leas in he shor erm. Tereore is imporan ha energy ax

expendiures work well. In previous CAP workweve called or regular reviews o all ax

expendiures o ensure his spending is eecive, ecien, and necessary.

Tere are some energy ax expendiures ha clearly do no mee his sandard. Sima

Gandhi and I wroe in deph abou his issue in Americas Hidden Power Bill, where

we described obscure ax credis or he oil-and-gas indusry ha have exised or more

han 80 years and have no demonsrable benes or Americans. Such ax breaks simplyprovide windall benes o hese maure indusries a axpayer expense. We also dis-

cussed several ax credis or clean energy ha are much beter designed.

Tis issue brie calls or Congress o ake acion on some o he mos imporan clean

energy ax issues in odays policy and poliical debaes: he producion ax credi, he

invesmen ax credi, and he reasury Cash Gran Program. Each o hese can be

exended in a way ha boh leads o powerul incenives or invesmen in our energy

uure and represens good ax policy.

Finally, is imporan o noe ha each o he hree primary issues is signican or adieren reason. Because renewable energy sources have dieren characerisics hey

require dieren reamens wihin he ax code. Simply exending he producion

ax credi is no sucien. Neiher is exending he reasury Cash Gran Program

nor improving he invesmen ax credi. Congress needs o do all o hese hings. I

Congress only akes acion on one o hese, hey will in eec be picking winners

across echnologies.

Congress should insead ocus on a comprehensive invesmen package ha creaes

pahs or all echnologies so ha American businesses will inves in he echnologies

ha make he mos sense or our counry.

Three ways to invest efficiently and effectively

Forunaely, we already know some o he bes ways or he ederal governmen o

make meaningul invesmens. Trough eecive and ecien use o he ax code, he
http://www.americanprogress.org/issues/2010/04/dww_tax_expenditures.htmlhttp://www.americanprogress.org/issues/2010/04/energy_tax_expenditures.htmlhttp://www.americanprogress.org/issues/2010/04/energy_tax_expenditures.htmlhttp://www.americanprogress.org/issues/2010/04/dww_tax_expenditures.html


4/12


governmen can coninue o help drive deploymen o he energy echnologies ha

will be criical o our uure.

Tis secion describes he hree mos imporan ax issues or he governmen o consider

in encouraging he nex wave o sraegic energy invesmen in he Unied Saes. Tey are:

Te producion ax credi Te invesmen ax credi Te reasury Cash Gran

Les look a each in urn.

The production tax credit

Te renewable elecriciy producion ax credi, or PC, is he mos criical ax incen-

ive or renewable energy projecs using wind, geohermal, biomass, and hydroelecricpower echnologies, among ohers. Ill ocus on wind here because is he mos promi-

nen, bu invesmen in all o hese resources is imporan.

Te PC is linked o elecriciy generaion rom a projec. Ta is, or each kilowat-hour

o elecriciy produced, he owner o a projec ges a ax credi. ax credi means ha

he owner o he projec ges o reduce heir ax bill by a cerain amouncurrenly 2.2

cens per kilowat hour, or kWha he end o he year.1

Les look a an example. A ypical large wind arm has several dozen urbines ha can

generae 100 megawats o elecriciy. Because he wind condiions are only avor-able or par o he year, i won produce ha much power all o he ime. Insead, he

wind urbines will only spin abou 30 percen o he ime. Tis wind arm will generae

262,800,000 kWh each year, which will earn $5,781,600 in ax credis rom he PC.2

Les be clear: Tis is a $5 million governmen invesmen, bu i jus happens o have

gone hrough he ax code. Tis ax credi is economically he same as governmen

spending: Te governmen has less money han hey would have wihou he inves-

men, and he projec is more proable. I is also rue ha he incenive helped simu-

lae he invesmen ha made boh he income and he ax expendiure possible. In

shor, his invesmen helped direcly creae economic aciviy and growh.

Since is creaion in 1993, he governmen has invesed several billion dollars in wind

power hrough he PC. Tese have been smar invesmens. Te PC is inended o

incenivize he deploymen o energy sources ha are more expensive han ossil-uel

sources and whose cos will come down as more o he echnology is deployed. Tis


5/12


is also known as driving a echnology down is cos curve. Since 1980 he cos o wind

power has declined by90 percen.

Declining coss are criical because hey allow or more clean energy o be buil, which

will improve our environmen and diversiy our power mix. Indeed, he PC has led o

massive amouns o new growh in he wind indusry. Since 1993 more han 40 giga-

wats o new capaciy have come online.

We know his growh is atribuable o he PC.

(see Figure 1)

Since is creaion he PC has only been exended or

wo years a a ime. When is no in eec, heres vir-

ually zero invesmen. When i is in eec, invesmen

is remendous. Tere are also more ormal economic

sudies suggesing he posiive oucome o he PC:

Economis Gilber Mecal, or example, nds ha[]he daa sugges ha much o he curren inves-

men in wind can be explained by he producion ax

credi or wind. (For more inormaion on how we

know he PC works, see he CAP repor, Americas

Hidden Power Bill.)

Te PC also has real benes or American workers.

A leas 85,000 people work in he wind indusry. Tese

workers are spread all across our counry and hroughou

he indusry. We have people making urbines, insallinghem, and operaing hem, all in good-paying jobs.

Unorunaely, we don have as many people working in he wind indusry as we could.

While he wind-manuacuring secor has grown in recen years, i has hisorically been

crippled by he PC expiring every wo years. Manuacurers know ha his on-again,

o-again cycle or he indusry would leave hem wih virually no business every oher

year, so American wind arms use some impored pars.

Indeed, we have more demand or cerain urbine pars han we have domesic manuac-

uring capaciy. In paricular, U.S. manuacuring capaciy is insucien or gearboxes,

generaors, bearings, and casings. Te lack o consisen policy is clearly conribuing

o U.S. underinvesmen in domesic producion o hese sraegic echnologies. Our

economic compeiors have simulaneously developed robus manuacuring capaciy o

serve boh heir growing domesic demand and mee global demand hrough echnol-

ogy expors. (see Figure 2)

FIGURE 1

Wind investments dramatically decline

when the PTC lapses

Precipitous drop expected in 2013

12,000

10,000

Annual wind capacity installed (MW)

73%drop

77%drop

8,000

6,000

4,000

2,000

099 00 01 02 03 04 05 06 07

DCE EIAforecast

08 09 10 11 12

100dro

93%drop

Source: AWEA
http://awea.org/issues/federal_policy/upload/PTC-Fact-Sheet.pdfhttp://web.mit.edu/ceepr/www/publications/workingpapers/2009-020.pdfhttp://www.americanprogress.org/issues/2010/04/energy_tax_expenditures.htmlhttp://www.americanprogress.org/issues/2010/04/energy_tax_expenditures.htmlhttp://www.awea.org/learnabout/publications/upload/Annual_Market_Report_Press_Release_Teaser.pdfhttp://awea.org/issues/federal_policy/upload/PTC-Fact-Sheet.pdfhttp://awea.org/issues/federal_policy/upload/PTC-Fact-Sheet.pdfhttp://www.awea.org/learnabout/publications/upload/Annual_Market_Report_Press_Release_Teaser.pdfhttp://www.americanprogress.org/issues/2010/04/energy_tax_expenditures.htmlhttp://www.americanprogress.org/issues/2010/04/energy_tax_expenditures.htmlhttp://web.mit.edu/ceepr/www/publications/workingpapers/2009-020.pdfhttp://awea.org/issues/federal_policy/upload/PTC-Fact-Sheet.pdf


6/12


FIGURE 2

U.S. manufacturing capacity is insufficient for

certain turbine parts due to policy instability

Extending the PTC would help build the entire

manufacturing sector in the United States

Note: U.S. key gaps in supply

Source: MAKE Consulting

Europe

Asia Pacific

USA/Americcas

WTGs (nacelles)

Gearboxes

Generators

Blades

Bearings

Castings

Towers

WTGs (nacelles)

GearboxesGenerators

Blades

Bearings

Castings

Towers

0 3 6 9 12 15 18 21 24 27 30

0 5 10 15 20 25 3 0 35 40 45

0 2 4 6 8 10 12 14 16 18 20 25 30

Demand 20

Demand 20

Demand 20

WTGs (nacelles)

Blades

Bearings

Castings

Towers

Gearboxes

Generators

Over he pas hree years, however, he Unied Saes

experienced remendous growh in wind manuacuring,

parly because o he relaively sable PC, which was mos

recenly exended or our years as par o he 2009 American

Recovery and Reinvesmen Ac, known as he simulus. In

ha ime new manuacurers se up shop across he counry

and he composiion o domesic pars ha each urbine madehas seadily increased while our wind energy impors declined.

Tis should be a lesson o Congress: A long-erm PC is more

valuable han a shor-erm exension when we look a he

overall impac on jobs and growh.

Insead o allowing he PC o expire his year, i should be

exended or a leas our more years o give condence and

sabiliy o invesors hroughou he supply chain. Tis doesn

mean, however, ha he PC should be exended indeniely

wihou review. Tis is exacly one o he bigges problems wihmany o he deeply fawed ossil-uel subsidies. I Congress

wans o exend i beyond ha imerame, hey should build in

a review process o evaluae wheher or no he credi should

be adjused in any way.

Congress should review he size o he credi and review

wheher or no i should be linked o infaion. Ulimaely as

he indusry maures and markes expand, he PClike oher

subsidies ha have done heir work and grown srong domesic

indusriesshould be allowed o sunse, aking axpayers ohe hook or paymens.

The investment tax credit

While he producion ax credi primarily benes wind, he solar indusry is he pri-

mary beneciary o he invesmen ax credi, or IC. Te IC works a litle dierenly,

in a way ha makes more economic sense or he ype o capial invesmen required

or developing solar energy projecs. Insead o he ax credi being spread over 10 years

and only awarded as energy is produced, renewable energy developers ge an upron ax

credi based on he iniial invesmen in he projec. For solar power he credi is worh

30 percen o he iniial invesmen.

So i a building owner spends $6 million o pu a 1 megawat solar energy sysem on a

buildings rooop, he building owner is hen awarded a $1.8 million ax credibu he

owner is no allowed o claim any oher ax credis over he lie o he projec.
http://eetd.lbl.gov/ea/ems/reports/lbnl-4820e-ppt.pdfhttp://eetd.lbl.gov/ea/ems/reports/lbnl-4820e-ppt.pdfhttp://eetd.lbl.gov/ea/ems/reports/lbnl-4820e-ppt.pdfhttp://eetd.lbl.gov/ea/ems/reports/lbnl-4820e-ppt.pdf


7/12


Te upron, one-ime naure o he IC has some real benes or solar power. Firs,

solar is a more expensive echnology o iniially insall, so invesors have a special need

or he invesmen-based incenive. Second, solar is a younger indusry han wind, and

he echnology isn quie as proven over he long erm. Tis means ha uure energy

producion is slighly less cerain wih solar power han wih wind power, so a produc-

ion-based incenive would be less valuable.

Jus like he PC, he IC has been a remendous success. Te solar indusry has experi-

enced exremely impressive cos improvemens. (see Figure 3)

No surprisingly, as coss all and

demand rises, he solar indusry now

employs more han 100,000 people,

up rom 20,000 jus ve years ago.

Te IC was exended unil 2016

as par o he simulus bill. Teexension provided very valuable

cerainy o he solar marke,

bu when i expires Congress

should also review he size and

eeciveness o his credi.

The Treasury Cash Grant

in lieu of tax credits

Despie heir incredible successes,

he PC and IC aren perec,

and hey don provide a complee

oering o mee he ull range o

projec-nancing needs aced in he

emerging renewable energy marke. Te bigges problem is ha mos renewable energy

projecs are srucured in such a way ha hey don earn pros or he rs several years

o he projecs lie.3 Te developer only owes axes on pros (no revenues), so hey

may no owe any axes or years aer building he projec.

A he same ime, ax credis are used o reduce he amoun o axes owed. Tus, i he

developer doesn owe any axes, he associaed credis are worhless. Tis is a srucural

limiaion o using he ax code o suppor sraegically valuable public invesmens.

radiionally, projec developers have worked around his problem by bringing in so-called

ax equiy invesors. Tese invesorsypically large nancial insiuions essenially

FIGURE 3

Investment tax credit a success

The decline in the cost per watt of solar photovoltaic

cells, 1985 to 2011 in constant 2011 dollars

Source: Tom Dinwoodie (SunPower) and

Dan Shugar (Solaria)

Sources: 1976-1985 data from IPCC, Final Plenary, Special Report Renewable Energy Sources (SRREN), May 2011; 1985-2010 data fr

Paula Mints, Principal Analyst, Solar Services Program, Navigant; 2011 numbers based on current market data.

$8

Due to Silicon shortage

$7

$6

$5

$4

$3

$2

$1

$0

Current $/Wp

Module pricing trends 1985-2011

85 87 89 91 93 95 97 99 01 03 05 07 09

Produced Silicon PV modules (global)

$100 $60.001976

201$

$50

$5

$1

$0100 1,000 10,000

Average price (USD 2005/W)
http://www.seia.org/galleries/pdf/Solar_Energy_Facts_Q2_2011.pdfhttp://thinkprogress.org/romm/2011/06/09/241120/solar-is-ready-now-%e2%80%9cferocious-cost-reductions-make-solar-pv-competitive/http://thinkprogress.org/romm/2011/06/09/241120/solar-is-ready-now-%e2%80%9cferocious-cost-reductions-make-solar-pv-competitive/http://thinkprogress.org/romm/2011/06/09/241120/solar-is-ready-now-%e2%80%9cferocious-cost-reductions-make-solar-pv-competitive/http://thinkprogress.org/romm/2011/06/09/241120/solar-is-ready-now-%e2%80%9cferocious-cost-reductions-make-solar-pv-competitive/http://www.seia.org/galleries/pdf/Solar_Energy_Facts_Q2_2011.pdf


8/12


buy he ax credis rom a projec.4 Tis cash rom he ax equiy invesor is exremely valu-

able and allows developers o moneize he ax benes wihou acually owing axes.

Tis sysem worked airly well beore he nancial crisis. Tere was more han $6 bil-

lion in ax equiy available in 2007. Te pool o ax equiy capial shrank dramaically,

hough, when large nancial insiuions no longer owed axes, as hey los money in

2008 and 2009.

Tis shorall was xed wih somehing called he reasury Cash Gran Program. Tis

program, also known as he Secion 1603 program because o where is included in he

simulus bill, does wo hings:

I makes he PC-eligible echnologies also eligible or he IC. I allows developers o ge a cash gran insead o he IC.

Tis means ha all renewable developers are able o ge a cash gran rom he reasury

Deparmen or 30 percen o he iniial invesmen in heir projec. Tis solved heax equiy marke shorall problem, and allowed renewable invesmens o coninue.

Insead o shrinking, he wind and solar indusries grew during he recen recession,

largely because he Secion 1603 program helped wih nancing.

Unorunaely, his program drew o a close a he end o 2011. Aer creaing he pro-

gram in 2009, Congress exended i or one year a he end o 2010. Now hey should

exend he program or a leas one more year, and ideally change i o run concurrenly

wih he underlying PC and IC, always maching heir expiraion daes. Tis is espe-

cially imporan because heres no expeced o be enough ax equiy available o mee

he demand. In 2011 he U.S. Parnership or Renewable Energy Finance esimaedha here was a oal o $7.5 billion available hrough ax equiy and he reasury Cash

Gran. Tey projec ha here will only be $3.6 billion in ax equiy available in 2012,

which is ar less han recen hisory suggess will be needed. (see Figure 4)

Te cash gran program makes he PC and IC more eecive, more ecien, and

more ransparen. I makes absoluely no sense o have his benecial program on a di-

eren schedule han he ax credis i improves.

In addiion o overcoming a simple shorall in invesmen capial rom he ax equiy

marke, he cash gran program has several benes ha make i superior o a ax credi.

Firs, he cash gran is more economically ecien. In a bes-case scenario, he ax equiy

invesor is going o buy ax credis a a sligh discoun (i makes no sense o pay ull price

because hen heres no possible pro or he invesor). In real lie, however, heres evi-

dence ha ax equiy invesors buy ax credis a a much deeper discoun. Te Biparisan

Policy Cener nds ha even hough a ax credi and cash gran may have he same ace
http://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdfhttp://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdfhttp://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdfhttp://www.bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdf


9/12


value o he governmen, he ax credi

is only hal as valuable as he cash gran

o he projec developer and hus is

dramaically less eecive a producing

clean energy oucomes.

Second, he cash gran is much moreransparen. When a developer claims

he IC, all hey do is check a box and

wrie in a number on a ax orm. When

hey claim he cash gran, however,

hey submi much more inormaion,

such as deails on he projec and he

number o jobs ha will be creaed wih

he invesmen. And while ax inorma-

ion is sricly condenial, he reasury

publishes a lis o every projec ha hasreceived a Secion 1603 cash gran.5

I Congress does choose o exend he

cash gran program o always mach he

PC and IC exensions, hus making

his public spending more ecien or

axpayers, hey should also evaluae he

size o he ax credis. Te overwhelming

populariy and he evidence o he cash

grans economic eciency seem o indi-cae ha he IC could be made smaller

i i is always oered as a cash gran.

Expanding the investment tax credit for offshore wind

In addiion o he hree key policies described above, here is a ourh way ha he ax

code could be improved o boos renewable energy. For many years he echnologies

eligible or he PC and IC have remained unchanged. Bu heres no reason ha new

developmens in renewable energy echnology shouldn be accouned or wih modi-

caions o he ax code. Mos imporanly Congress should place echnologies wihin

he PC or IC (or boh) depending on he unique characerisics o each echnology

and heir specic capial invesmen needs.

Te oshore wind indusry is poised o ake o in he waers o o Americas Eas

Coas. Unorunaely, as Michael Conahan and I wroe in Clean Energy rom

FIGURE 4

The tax equity market has not recovered enough

to end the Treasury Cash Grant Program

Tax equity and Treasury grant financing 2005 to 2010,

2011 (estimate), and 2012 (forecast)

Source: US Partnership for Renewable Energy Finance

$ Billion

7.0

PTC/ITC only PTC/ITC only(2)PTC/ITC/Grant

$0.5

$3.2

$6.1

$3.4$3.2

$7.2

$3.9

$7.5

~$3.6

6.0

5.0

4.0

3.0

1.0

2005

Tax equity

Sources: U.S. Department of The Treasury, US PREF Estimates, Leading Tax Equity Market Participants(1) Includes all 1603 Treasury Grants for renewable projects

(2) Projects with 5% equity spend or in continuous construction prior to 12/31/2011 and that achieve COD

by 12/31/2012 are eligible for the Section 1603 cash grant

Est. tax equity Treasury grant Est. Incremental 2011 treasury grant

2006 2007 2008 2009 2010 YTD 2011 2011E 2012E

2.0

v

Last years US PREF tax equity study estimated there would be ~$3.0 billion of tax equity available in t

market place through the end of 2010 by the end of 2010 ~$3.3 billion of tax equity was deployed.

Last years study estimated there would by ~$3.0 billion in a normal market of tax equity available in

2011 year-to-date $1.9 billion in tax equity has been deployed, this study estimates by year end 20

there may be ~$3.6 billion of total tax equity.
http://www.americanprogress.org/issues/2011/06/offshore_wind.htmlhttp://uspref.org/wp-content/uploads/2011/09/Tax-Credits-Tax-Equity-for-Clean-Energy-Financing.pdfhttp://uspref.org/wp-content/uploads/2011/09/Tax-Credits-Tax-Equity-for-Clean-Energy-Financing.pdfhttp://www.americanprogress.org/issues/2011/06/offshore_wind.html


10/12


Americas Oceans, More han 40,000 megawats o oshore wind energy capaciy

have been permited around he globe, ye he Unied Saes accouns or barely 1

percen o ha, and we have ye o generae our rs wat o elecriciy rom his abun-

dan, carbon-ree source o power.

Teres no shorage o ineres in building oshore wind arms and several projecs

are moving orward wih permiting and siing. Te righ governmen invesmen canprovide criical suppor or leveraging privae capial invesmen in hese projecs o

accelerae he growh o his new American indusry.

In many ways, oshore wind looks more like solar han i looks like onshore wind.

For insance, he echnology has exremely high upron coss. Tese are expeced o

rapidly decline over ime, bu hey are currenly a signican barrier o invesors ener-

ing his marke.

Furher, he oshore wind echnology is largely unknown and unproven in he eyes o

American invesors and reurns are hereore discouned in he capial marke. Becausehe uure producion rom an oshore wind arm is less cerain han wih onshore

wind, he value o he producion ax credi is also unpredicable.

Congress should address his issue by making oshore wind emporarily eligible or he

IC, which beter suis his emerging indusry. As he indusry grows and more closely

resembles onshore wind, he echnology should shi back o he PC.

Conclusion

Clean, renewable energy is a brigh spo in he U.S. economy. Tis indusry is a success

sory ha has resuled in job creaion, scienic innovaion, cleaner air, and a sronger

manuacuring secor.

Ye his is sill a young indusry and i sill needs signican public invesmen.

Imporanly, his invesmen should be srucured in a way ha suppors he enire

indusry in an ecien, cos-eecive manner. When he governmen invess in clean

energy, hey need o mach he ools available o he specic echnologies and busi-

nesses ha heyre supporing.

In his issue brie we have explained why he producion ax credi should be

exended. Tis is he undamenal ool ha he governmen uses o inves in renew-

able energy, and i has been a remendous success. Bu exending he PC is no su-

cien o suppor he whole indusry.
http://www.americanprogress.org/issues/2011/06/offshore_wind.htmlhttp://www.americanprogress.org/issues/2011/06/offshore_wind.html


11/12


Oher echnologies require an invesmen ax credi, which can be made more eecive

when issued as a cash gran, as in he Secion 1603 reasury Cash Gran Program.

Finally, here are new ypes o renewable energy ha are no properly reaed in exising

law. Oshore wind power is much beter suied o he IC han he PC, and Congress

acknowledged his by making oshore wind specically eligible or he IC.

Tis sraegy o srong invesmen in renewable energy, wih he invesmen channeled

hrough a mix o ools, will make America a beter place. Congress should sar 2012 by

making his happen.

Richard W. Caperton is Director of Clean Energy Investment at the Center for American Progress.


12/12

12 C t A i P | G d G t I t t i R bl E

Endnotes

1 The PTC is indexed to ination. The credit was originally or 1.5 cents per kWh in 1993 and has increased since then.

2 100 MW x 8760 hours per year x 30 percent x 1000 kWh per mWh x 2.2 cents per kWh = $5,781,600

3 As with all tax issues, there are extremely complicated rules associated with the PTC and ITC that make their implementationsomewhat challenging. For example, the accounting standards that help determine how big the initial investment in a project is(which is necessary or claiming the ITC) are oten qu estioned.

4 The actual structure o these investments is extremely complex, since tax credits cant really be sold. Instead, the tax equityinvestor typically owns all o the assets o a project or the frst ew years in order to capture the tax benefts, and then ownershipreverts to the developer to capture profts in out years. For more on these structures, see: John P. Harper, Matthew D. Karcher, andMark Bolinger, Wind Project Financing Structures: A Review and Comparative Analysis,(Washington: Ernest Orlando LawrenceBerkeley National Laboratory, 2007), available at http://eetd.lbl.gov/EA/EMP/reports/63434.pd.

5 For more on these issues and other benefts o cash grants, see Americas Hidden Power Bill.

good government investments in renewable energy

Documents