Wind Energy Incentives - Summarized
Since the last entry, my focus has been increasingly placed in the renewables sector, investing our fund in five Midwest wind farm developments and raising capital for a project that will provide a significant amount of wind energy to the desert Southwest. In a challenging investment environment, there are good opportunities in U.S. renewables, notably wind.
For wind development, the fundamental industry challenge is to assess the impact of new incentives against last fall’s collapse of traditional project finance. Our government has laid out a package of new incentives for wind in the last year, which can be summarized as follows:
Three-year extension of the production tax credit (PTC)
• ARRA extends the PTC for wind energy for three years, through December 31, 2012.
Temporary ability to claim 30% investment tax credit (ITC) instead of production tax credit (PTC) (Sec. 1102)
• An entity otherwise eligible to claim the PTC may instead elect to claim a 30% ITC in lieu of the PTC for work done before 2011.
Treasury grant program in lieu of the ITC
• ARRA allows eligible taxpayers for an ITC to receive an equivalent financial grant from the Treasury Department, in lieu of claiming the credit if the project starts on a schedule close to the present.
Clean Renewable Energy Bonds (CREBs)
• ARRA authorizes an additional $1.6 billion of new clean renewable energy bonds to finance renewable energy facilities, including wind energy.
Loan Guarantee Program
• ARRA amends the Energy Policy Act of 2005 to create a new Department of Energy (DOE) loan guarantee program funded at $6 billion, requiring projects to commence construction no later than September 30, 2011.
Transmission
• ARRA provides $6.5 billion to transmission lines that deliver power from renewable energy resources.
ARRA provides $4.5 billion for DOE’s Electricity Delivery and Energy Reliability (ED) program
State Energy Program (SEP)
• ARRA provides $3.1 billion for the SEP. The SEP is a flexible federal-state partnership to fund energy efficiency and renewable energy.
o Given the scale of the increase, many states are going to be challenged to deploy this funding as rapidly as required by federal rules.
Next up will be an energy bill, with expected new standards for the purchase of renewable power by utilities.
As this plays out, the wind energy market:
-Will respond to the ‘final’ clarity of the energy bill, putting the complete package of incentives in perspective.
-This prospect appears to be attracting capital, or at least the attention of investors, including non-US investors looking for growth as wind power markets overseas become more mature. For 20% wind energy to become a reality in the US, an investment of roughly $750 billion is required. The scope of this investment is a key driver for the market.
-John