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Report: Cash incentives better than federal tax credits for US renewable energy

Replacing federal tax credits with cash incentives for renewable energy could deliver big savings for taxpayers, according to a new report.

As the pre-election debate continues in the US about future federal incentives for the solar and wind industries, a new report by Climate Policy Initiative (CPI) says the government could sustain support for renewable energy at much lower cost to taxpayers. The key is replacing current tax credits with cash incentives. For example, a taxable cash incentive for wind energy could deliver the same support to wind projects as current policy and almost halve the cost to taxpayers, according to the report, Supporting Renewables while Saving Taxpayers Money.

"Policymakers support renewable energy because it generates many benefits for the American people," said Kath Rowley, director of CPI's US office. "This support is critical to continued wind and solar industry development. However, key policies are set to expire just when lawmakers are looking for ways to reduce the deficit.

“The good news is that our analysis finds a sweet spot: Small changes in federal policies could deliver big savings for taxpayers, and at the same time sustain growth in the renewable energy sector."

CPI's report shows that federal wind and solar incentives bridged roughly half the gap between the costs of renewable electricity generation and electricity market prices for wind and solar projects financed in 2010. Assuming current federal policies are sustained, performance and technology improvements mean the average wind project financed in 2013 would be nearly viable through federal incentives alone, while solar projects would still require some state support.

Changing federal policies from tax to cash incentives would save taxpayers money while maintaining the same level of support for the wind and solar industries, it says. “Current federal tax incentives are not a cost-effective way to support renewable energy because most project developers don't have enough tax liability. As a result, they employ tax equity partners at additional cost. With cash incentives, developers don't need tax equity partners; this makes the system more cost-efficient."

Recommendations

The report recommends two changes to federal wind and solar incentives:

  • Extend the wind production tax credit and deliver it as a $21/MWh taxable cash incentive. This would have the same value to projects, reduce inefficiencies, and reduce government costs by almost half for every unit of clean electricity generated.
  • Give solar photovoltaic projects the option to take a 20% 1603 cash grant in lieu of the current 30% investment tax credit. This would simultaneously reduce government costs while better supporting solar energy projects.

The report bases its findings on analysis and modeling of renewable energy projects developed in the US over the past four years, including project costs and timelines, project performance, and project financial structures. 

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Photovoltaics (PV)  •  Policy, investment and markets  •  Solar electricity  •  Wind power

 

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