Tax credits for wind, solar energy face renewal

October 6, 2008
| By Pete Daly |
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A mix of federal tax credits for companies and consumers investing in wind and solar energy expire at the end of December, with Congress now considering proposals for renewals.

Mark Bauer says a failure to renew would be a great loss to consumers and to companies planning to invest in commercial wind generation.

Representatives of two companies leasing thousands of acres for potential wind generation near Grand Rapids are more blasé about the impact of non-renewal on their plans.

Bauer owns Bauer Power in Wayland, which sells and installs solar and wind generation equipment to homeowners and businesses throughout much of Michigan and in Illinois. His seven-year-old company has annual revenue of over $2 million and 11 full-time employees at the main location in Wayland and another location in Peoria, Ill.

Bauer said the federal government gives businesses and homeowners a tax credit equal to 30 percent of the cost of buying and installing solar panels. The 30 percent credit for homeowners is capped at $2,000 but there is no cap for a business.

Bauer said businesses in Michigan lately have been calling his company "like crazy" because of the impending expiration of the federal solar energy tax credit.

The federal government does not offer any individual taxpayer credits for wind generation equipment installed by a homeowner but it does provide a production tax credit to commercial generating companies that install large wind turbines. There are also U.S. Department of Agriculture subsidies for farmers who install wind or solar generating equipment.

As for the state of Michigan, there are no incentives of any type, for any wind or solar generation investment by either individuals or businesses, according to Bauer.

If the federal production tax credit for commercial energy generators is not renewed, its expiration "will threaten large wind installations dramatically because it's a major part of the equation when they look at the cost (of the investment)" and the return to the investors.

The federal production tax credit provides a 1.9-cent per kilowatt-hour benefit for the first 10 years of a renewable energy facility's operation. According to the Union of Concerned Scientists, the tax credit has been a major driver of wind power development, along with the renewable electricity standards passed by about half of the states. Originally enacted as part of the Energy Policy Act of 1992, the credit has been allowed to expire three times since 1999, with those lapses causing "a dramatic slow down in the implementation of planned wind projects," according to the UCS.

According to the American Wind Energy Association Web site, when the production tax credit expired in 1999, the following year saw a 93 percent drop in the installation of wind generation capacity. It was re-enacted for 2001, and when it expired again at the end of that year, there was a 73 percent drop in the addition of new wind generation capacity during 2002. It was enacted again for 2003, and expired at the end of that year, with a 77 percent drop in new installation of wind generation capacity in 2004. It has now been in effect continuously since 2005.

For at least a year now, two companies have been leasing thousands of acres of "wind rights" in the so-called Fruit Ridge area of high hills where Kent, Ottawa and Muskegon counties meet. One is Heritage Sustainable Energy of Traverse City; the other is one of the largest wind farm developers in the world, Iberdrola Renewables of Spain, which has already built at last one meteorological tower to test wind conditions on the high ground.

Jan Johnson, communications director for Iberdrola Renewables in the U.S., said renewal of the PTC "is a matter of when and not if. Congressional leaders have indicated that extensions of the production tax credit and the ITC, which benefits solar (investments), are high on their priority list."

"We're confident the PTC and the ITC will be extended before the end of the year," she added.

According to Johnson, Iberdrola Renewables is the largest provider of wind-generated electrical power in the world, with "well over 2,000 megawatts here in the U.S. that's in operation now" and 20,000 megawatts in development. The company is committed to putting on-line at least a thousand megawatts of wind power every year in the U.S.

Although she said Iberdrola has "never cut back on our development activities anytime the PTC has gone through these little fits and starts," she indicated they may speed up a project that can be completed before incentives such as the production tax credit expire.

Iberdola has certain strategies in place, said Johnson, but she quickly added the company fully expects the tax credit will be extended before it expires.

Rick Wilson, project coordinator for Heritage Sustainable Energy and its sister company, Wind Energy Partners, said the company now has about 5,000 acres of wind rights leased on the Fruit Ridge.

Wilson said Heritage plans to erect some meteorological towers in that area "before the snow flies."

He said the tax credit is a big part of the financial value of the development stage of wind farms, in the 10 years covered by the credit, but, he said, "We're looking beyond that." He indicated Heritage is not planning to reduce its development plans here at this point.

"We're a company in this for the long haul. We're not in it for the short term," said Wilson.

He said the fact that wind generation is sustainable and has no environmental impact, compared to the process of extracting and burning fossil fuels for electrical generation, adds to wind generation's inherent value "over and above a federal tax credit."

Bauer, a native of Minnesota who married a woman from Michigan, said the people of Michigan in general "are very passionate about the environment."

He said it is inspiring to him that Michiganders will install wind and solar devices at their homes when they have no incentives to do it. “And other states that have incentives — people aren’t taking advantage of it. I don’t think they have the passion and the concern to do the right thing like Michiganders do."

Bauer said he expanded his operation to include Illinois, rather than putting a second sales office in Michigan, "because we see no movement in the state legislation" to offer incentives for use of wind or solar energy.

"All they simply want to do is put in more coal plants. Meanwhile, we're in the 14th windiest state in the nation," he said.

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