Supporting wind energy and saving U.S. taxpayers nearly $5 billion in three easy steps

Uday Varadarajan, December 18, 2012

 

CPI’s recent study, Supporting Renewables While Saving Taxpayers Money, showed that U.S. governments could save a lot of money by adjusting how tax incentives for renewable energy are delivered. In particular, we showed that a $21/MWh taxable cash incentive for production (TCP) for wind could provide the same support to wind projects as the current $22/MWh production tax credit (PTC) and almost halve the cost to federal and state governments.

US Government could save 4.5 billion by adjusting current wind policy

The PTC is set to expire at the end of this year. The Senate has proposed extending it by one year, but at a cost to government in excess of $12 billion – a heavy lift given budget constraints. Replacing the PTC with a TCP could reduce that cost to $7.5 billion. A similar reduction in cost would apply to any proposal to extend the PTC, including the recent proposal by the American Wind Energy Association to phase-out the PTC over six years.

How does this work?

Well, wind project developers have limited tax liabilities. That means that by themselves, most project developers can’t use federal tax benefits until years after they are received, eroding almost two thirds of the incentive value. In order to get more out of these incentives, project developers bring in outside investors who have greater tax liabilities. This is called tax-equity financing. However, tax equity financing is more expensive and complex than conventional finance, and erodes about a third of the incentive value.

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Did federal renewable incentives make a difference?

Uday Varadarajan, December 3, 2012

 

Since 2008, U.S. workers have built enough solar and wind farms to power over six million homes with clean energy. This boom was financed primarily by tens of billions in private investment – substantial financial commitments which would not have been made in the midst of a deep financial crisis without strong, sustained policy supports at the state and federal level.

But were federal incentives really necessary and are they still needed moving forward, given recent reductions in solar and wind technology costs?

These questions are especially important in light of discussion around the production tax credit for wind, which is scheduled to expire at the end of this year.

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Supporting Renewables while Saving Taxpayers Money

Uday Varadarajan, September 18, 2012

 

In the face of the deepest economic downturn in decades, renewable energy in the U.S. is booming. With financing primarily from the private sector, U.S. workers have built enough solar and wind farms to provide clean electricity to over six million homes since the start of the recession in 2008.

This growth would not have been possible without steady support from state and federal policies like the $22/MWh production tax credit (PTC) for wind. But now, these policies are starting to fade away. A report by US PREF has shown that state policies are likely to drive far lower levels of renewable deployment than we’ve seen in recent years – and the PTC is set to expire at the end of the year.

On top of this, while the cost of wind and solar have been falling, rising deployment has led to rising costs to the federal government. With the steep fall in tax revenues and the increase in federal assistance that has come with the deep recession, lawmakers are looking for opportunities to reduce the deficit – and the cost of extending the PTC looms large. Policymakers want to balance support for renewable energy with these fiscal pressures.

So, we decided to analyze how the federal government can modify existing renewable incentives to save money, while sustaining strong support for U.S. renewable energy deployment. We used project financial modeling of three representative project cases based on actual deployed project cost, financing, and performance data and trends to perform the analysis. We aren’t alone in our interest in this topic; this work started as modeling to support a broader effort to examine ways to scale-up financing for renewable energy in partnership with the Energy Foundation, ACORE, and CalCEF.

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What does the U.S. Government really spend on energy?

Uday Varadarajan, March 12, 2012

 

Federal energy incentives such as tax breaks and loan programs are the subject of vigorous public debate. This attention is at least in part due to the politics surrounding the failure of the solar manufacturer Solyndra (which received a $500 million government loan), the cost to government of tax incentives for oil and gas production when industry profits are at all-time-highs, and the level of government debt. However, the debate is also a part of a broader national conversation about the appropriate role of government – and in particular about the role of the federal government in the supply and use of energy.

This role is of particular interest to us here at CPI: energy generation and use in the U.S. is responsible for the lion’s share (87%) of the nation’s greenhouse gas emissions which contribute to global climate change. We’re interested in how federal policy is influencing these emissions, and how well it’s working.

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Renewables and the U.S. Defense Department

Uday Varadarajan, February 1, 2012

 

The American Council on Renewable Energy (ACORE)’s webinar last month on Security, Sustainability, and Renewables was the latest in a series of recent renewable energy policy discussions to highlight growing interest in the emerging opportunities for the renewable sector to work with the U.S. military. Interest in military applications of renewables have risen at least in part due to federal policy uncertainty. The impending expiration of several renewables incentives (such as the Recovery Act’s tax grant program and the production tax credit for wind) along with the budget constraints arising from the political impasse over government spending and debt suggest the real possiblity of significantly lower direct federal government support for renewable technology R&D and deployment. As a result, there is growing interest in looking for ways to improve the efficiency of existing renewable policies as well as looking for opportunities for hedging against possible removal of support (see for example, the work of the Bipartisan Policy Center on more efficient subsidies for renewables).

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