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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.
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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
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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
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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
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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.pdf8/3/2019 Good Government Investments in Renewable Energy
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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.pdf8/3/2019 Good Government Investments in Renewable Energy
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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.pdf8/3/2019 Good Government Investments in Renewable Energy
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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.pdf8/3/2019 Good Government Investments in Renewable Energy
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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.
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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.
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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.
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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.