Wind Energy Financial Incentives
Financing incentives can impact overall project economics and are an integral part of the successful implementation of distributed and utility-scale wind energy. As with all energy projects, federal, state, local, and utility financial incentives are also available for wind projects.
The Database of State Incentives for Renewables and Efficiency (DSIRE) is a comprehensive source of information on incentives that promote renewable energy and energy efficiency. Interested parties can search by Zip code to learn about programs in their area. The following provides an overview of the main federal incentives for wind energy projects.
The federal government uses subsidies and incentives to stimulate deployment for all energy technologies. These subsidies can include:
- Federal programs that provide direct cash outlays to producers or consumers of energy
- Tax expenditures that reduce the tax liability of firms or individuals who take specified actions that affect energy production, distribution, transmission, consumption, or conservation
- Energy research and development (R&D) activities aimed at increasing U.S. energy supplies or improving production and end-use technologies
- Support for federal and rural utilities
- Loans and loan guarantees that provide financial support for energy technologies by guaranteeing the repayment of loans obtained in the private debt market or by lending money directly to energy market participants.
The following is a breakdown of current and past federal incentives for wind energy, including an update on the Production Tax Credit (PTC).
Production Tax Credits and Investment Tax Credits
Originally enacted in the Energy Policy Act of 1992, the PTC is a production-based tax credit available to various renewable energy sources, implemented to level the playing field based on the incentives provided to other energy sources. The Investment Tax Credit (ITC) provides a credit for investment costs at the start of a project. Learn more about the PTC and ITC.
The American Recovery and Reinvestment Act of 2009, known as ARRA or the Recovery Act, allowed wind projects to take the ITC in lieu of the PTC. ARRA also created the Section 1603 Treasury grant, a temporary program that enabled specified energy property built by the end of 2012—including wind projects—to receive a cash grant of 30% of a project’s capital costs in lieu of either the PTC or ITC.
Given the challenges in securing tax equity during the financial crisis, Section 1603 has been credited with supporting the continued growth of the renewable energy sector during what was otherwise a challenging investment environment. The program also reduced barriers for newer and less-experienced wind developers, who might otherwise have faced sizable challenges in accessing the limited supply of tax equity.
ARRA also created the Section 1705 Loan Program for commercial projects, which closed on four loan guarantees to wind projects totaling more than 1,000 megawatts.
Accelerated depreciation through the federal Modified Accelerated Cost-Recovery System (MACRS) allows wind project owners to depreciate most project capital costs on a 5-year schedule. The Economic Stimulus Act of 2008 and subsequent legislation provided a further 50% first-year bonus depreciation provision for projects built between 2008 and 2010. The American Taxpayer Relief Act of 2012 extended a 50%, first-year bonus depreciation to projects placed in service through December 31, 2013.
Rural Energy for America Program
The U.S. Department of Agriculture provides farmers and ranchers with loan guarantees and grants for renewable energy development assistance through its Rural Energy for America Program (REAP). Entities such as state, local, and tribal governments; educational institutions; and rural electric cooperatives are also eligible for REAP incentives.