There is little doubt that the production tax credit increases wind-project development. The PTC and other tax credits have made the U.S. wind industry the leader in renewable energy. Unfortunately the incentives weren’t renewed this year. But there is good news: owners and developers can take advantage of other incentives that also promote industry growth. The Lawrence Berkeley National Laboratory discussed few notable federal tax incentives in a recent report that explains accelerated tax depreciation and renewable-energy loan guarantees.
Accelerated tax depreciation
Depreciation is used by businesses to reflect the declining value of long-lived assets on balance sheets over time. Wind turbines qualify. On tax returns, depreciation is also the way in which businesses expense the cost of long-lived assets. Depreciation is not provided preferentially to wind projects. Other industries can apply it to their equipment as well. Accelerated tax depreciation, however, does provide a preferential incentive due to the time value of money.
Wind-power projects are intended to operate for about twenty years. Using the accelerated tax depreciation incentive, owner’s can take advantage of around 95% of a wind-power investment. Under the 5-year Modified Accelerated Cost-Recovery System (MACRS) schedule, the depreciation is accelerated over a relatively short five to six-year period, rather than a more conventional 20 years. To further encourage development, tax law allows 50% or 100% bonus depreciation schedules, or a 12-year straight-line depreciation schedule.
The advantage is that depreciation is treated as a deduction from taxable income. The ability for wind projects to accelerate these deductions, compared to the useful life of a 20-year project, leads to greater tax savings in the early years, which increases the benefit and incentive to invest, due to the time value of money. Ideally, the 5-year MACRS deductions and other incentives more-than-eliminate a project’s taxable income over this period.
Renewable-energy loan guarantees
The DOE recently announced that it has reopened the renewable-energy loan guarantees program and will soon be accepting applications. This incentive’s primary goal is to reduce greenhouse gas and will grant around $4 billion in renewable-energy financing for qualifying projects. Government guarantees let wind projects access debt capital at reduced interest rates. Before the program was extended, partial loan guarantees were issued to four utility-scale wind projects. wpe
For further reading:
An Analysis of the Costs, Benefits, and Implications of Different Approaches to Capturing the Value of Renewable Energy Tax Incentives is available here. WPE