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Incentives Fund Wind Energy Projects

Federal and state incentives from the U.S. Department of Energy, American Recovery and Reinvestment Act, and Section 1603 cash grants are propelling wind energy projects forward.

Gregory Burkart, Detroit Manging Director, Duff & Phelps (Apr/May 10)
(page 2 of 2)
CHART: State Incentives for Renewable Energy. CHART: State Incentives for Renewable Energy.
State Support
In Texas, Iowa, and California - states that cumulatively represent more than 15,000 megawatts of installed capacity - programs offer favorable financing for wind projects. The Iowa Energy Center administers a state loan program called the Alternate Energy Revolving Loan Program. Through a competitive process, developers can apply for a zero percent interest loan with a maximum term of 20 years. The maximum loan amount is $1 million, and a lender provides the remainder of the funding at market rates.

For wind projects in Colorado, Texas, Florida, or California, developers can tap into what DSIRE calls Property Assessed Clean Energy (PACE) financing. In each of these states, the legislatures have authorized local communities to offer long-term financing to property owners for alternative energy improvements. In exchange, the property owner must agree to a contractual assessment on the property that is used to repay the loan. The programs share similarities with tax-increment finance districts. While each state differs, the laws generally require each local community to adopt a formal plan that may include:
•A map delineating the area where the contractual assessments may be levied;
•A model agreement between the property owner and local government;
•A requirement whereby the property owner may contract for the installation or purchase the systems directly;
•A requirement of whether the installers of the alternative energy improvements must be licensed;
•A method for determining whether property owners have the financial clout to repay the assessments;
•Types of eligible facilities and improvements;
•A maximum aggregate dollar amount of contractual assessments;
•A method for prioritizing applications if requests exceed the authorized amount;
•A plan for raising capital required to pay for the improvements, including whether local communities may issue bonds to fund the program; and
•An itemization of the transaction costs and professional fees associated with the financing, administration, and collection of the special assessments.

Some local governments - like Boulder, Colorado and Berkeley, Sonoma County, and Palm Desert in California - have already adopted PACE.

In addition to offering favorable financing, Iowa and Texas offer corporate tax credits and exemptions as incentives for wind energy projects. The legislature in Iowa enacted two separate production tax credits, according to DSIRE. The Section 476C credit is $0.015 per kilowatt hour for facilities placed in service on or after July 1, 2005 and before January 1, 2012. Under Section 476B, the credit is $0.010 per kilowatt hour for facilities placed in service during the same time period. But the Section 476C credit may be transferred only once to a third party, while a Section 476B credit is freely transferrable. This difference can affect financing for wind projects.

In Texas, corporations or other entities subject to the state's modified franchise tax may deduct the cost of wind energy devices from their tax liabilities, according to DSIRE. (The original language referred to "solar energy devices," but House Bill 3 revised the overview to qualify wind energy devices for exemptions and deductions.) The deduction is 10 percent of the amortized cost of the system from the taxpayer's apportioned margin. Manufacturers, sellers, and installers of wind technologies receive a franchise tax exemption, along with wind power generators.

Tax Incentives
Texas and Iowa also offer specific property tax relief for wind projects. Local Iowa communities may adopt an ordinance assessing wind energy equipment at a special property tax valuation. The rate commences at zero percent of the net acquisition cost in the first year, and increases incrementally to a maximum of 30 percent of the net acquisition cost in the seventh year and on. The special valuation is permissible for 20 years, and at the end of the period, the property is appraised at fair market value rather than 30 percent of the net acquisition cost. To further benefit projects in Iowa, the Department of Revenue will not assess wind property until the project is complete. Additionally, wind projects are exempt from the state's Energy Replacement Generation Tax, a replacement tax on generation facilities in lieu of property taxes.

Texas permits a property tax exemption for wind projects. The exemption is for the amount of the appraised property value that results from the installation of a wind project. The exemption requires a completed Form 50-123, "Exemption Application for Solar or Wind Powered Energy Devices."

Other states also offer enticing incentives, and the winds of change may mean new wind energy leaders are on the horizon.

Note: Detailed information on the state and local tax exemptions and credits described above, in addition to incentives not mentioned, can be found at the Database of State Incentives for Renewable Energy (www.dsireusa.org). For information relating to Treasury's Grant in Lieu of Tax Credits, please see Treasury's Guidance (www.treasury.gov/recovery/1603.shtml).


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- Gregory Burkart, Detroit Manging Director, Duff & Phelps
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