It’s easy to get a bit cynical when Congress registers some forward progress on extending tax benefits for renewable energy technologies. You only have to look back at Dec. 16 to get a little jaded. That’s when the previous Congress passed an extension of the production tax credit (PTC) for wind projects and other forms of renewable power. Unfortunately, that extension lasted for all of two weeks, with the PTC expiring at the end of 2014.
And yes, it is late July and only now is there some movement on again extending the PTC – the Senate Finance Committee this week cleared a package of more than 50 tax credit extensions for individuals, families and businesses, including a number for the renewable energy sector like the PTC for wind energy. But the 23-3 bipartisan vote approving the legislation and the insistence by Committee Chairman Orrin Hatch (R-UT) that the incentives package must be adopted by Congress and sent to the White House “as soon as possible” gives rise to the belief that there is some serious effort to get these benefits back on the books.
A full-court press by renewable energy groups and their allies to push this package through the Senate can be expected following Congress’ August recess. While House GOP leaders have talked about undertaking major tax reform and making many of the extenders permanent, they have backed off those prospects with a presidential election looming next year. And while the legislative agenda will be crowded this fall, the presence of wind facilities in more than 70 percent of House Republicans’ districts will likely dictate some serious consideration of the PTC package when members return from the recess.
Here’s what is on the line: a two-year extension (through 2016) of a PTC that can be claimed as a 2.3 cent per kilowatt hour – or an alternative 30 percent investment tax credit ‑ for new projects that generate renewable electricity from by wind, geothermal, biomass, landfill gas and ocean energy projects. Also in play are a $1.01-per-gallon production tax credit for cellulosic biofuels; a $1-per-gallon credit for renewable diesel and diesel created from biomass; a 10-cent-per-gallon small agri-biodiesel producers credit; and a two-year extension of the special depreciation allowance for second generation biofuel plant property and the alternative fuel mixture excise tax credit.
Sen. Chuck Grassley (R-IA), a prime mover of the renewable energy tax credit package, successfully offered an amendment that would change the biodiesel fuels tax credit from a mixture credit to a production credit, essentially making the benefit available only to domestically produced biodiesel and not imported fuels.
(The package does not include anything related to the 30-percent investment tax credit [ITC] available to solar residential and business projects. The solar ITC does not expire until the end of next year.)
What is critical about moving these tax credits as soon as possible is the stability they bring to the renewable energy sectors. The on-again, off-again treatment of these incentives by Congress has resulted in a boom-and-bust cycle creating uncertainty, particularly among investors key to the development of these critical, clean-energy projects. When Congress did not renew the PTC in 2013, the installation of new wind facilities dropped a steep 92 percent and private investment fell by $23 billion over the year before.
The tax credits can be part of a package of financing options for many renewable energy projects, a reality not lost among participants in the 25x’25 Energy for Economic Growth Initiative (EEG). The Alliance is assisting a number of rural electric cooperatives in exploring ways to fund the development of renewable energy projects that can offer a diversified, cleaner and cheaper supply of power for their members.
The EEG Tax Equity/Finance Team, headed by people like Jim Spiers, the head of the National Rural Electric Cooperative Association’s Cooperative Research Network, and John Padalino, the former administrator of USDA’s Rural Utilities Service (RUS), is continuing to build out a model and guidebook designed to help rural electric co-ops to attract a broad range of financing for local renewable energy development projects, which could benefit widely from the PTC.
The 25x’25 Alliance urges policy makers in Washington to promote the benefits of distributed generation in rural areas by sustaining incentives like the PTC. These tax mechanisms help keep billions of dollars of assets in rural America in play and generate a sizable return through savings on expensive and often polluting conventional power and power plants; reduced investments in transmission and distribution infrastructure; reduced losses in electricity during transportation over power lines, given that distributed power is generated and consumed locally; and savings on the cost of meeting renewable energy requirements. Simply put, production tax credits are a good deal.