| Financing Options for Wind Projects |
The United States has a history of subsidizing energy prices in order to ensure energy prices are kept at a rate that can be afforded by customers. In order to promote the emergence of the renewable energy industry, which includes wind, financial mechanisms have been put in place to allow these technologies to compete among more traditional units. In the face of global climate change investments in renewable energy technologies, particularly wind energy, have become a priority for public and private entities and have helped to drive down the costs of these technologies to become competitive in traditional markets. Listed below are incentives for both residential and commercial wind systems.
Note: Financial Incentives are dependent on federal, state, and local incentives and are subject to change.
Please visit the Database for State Incentives for Renewables and Efficiency for current information.
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Federal Incentives for Small Wind Energy Systems
Residential Renewable Energy Tax Credit (more info)
- Owners of 100 kW or less capacity small wind systems can receive a credit for 30% of the total installed cost of the system.
- Systems must be placed in service from January 1, 2008, through December 31, 2016.
- The home served by the system does not have to be the taxpayer’s principal residence.
Business Energy Investment Tax Credit (more info)
For small wind turbines, the credit is equal to 30% of expenditures,
with no maximum credit for small wind turbines placed in service after
December 31, 2008. Eligible small wind property includes wind turbines
up to 100 kW in capacity. (In general, the maximum credit is $4,000 for
eligible property placed in service after October 3, 2008, and before
January 1, 2009. The American Recovery and Reinvestment Act of 2009 removed the $4,000 maximum credit limit for small wind turbines.)
USDA REAP Grant and Loan (more info)
The Farm Security and Rural Investment Act of 2002 (the Farm Bill) established the Renewable Energy Systems and Energy Efficiency Improvements Program under Title IX, Section 9006. This program currently funds grants and loan guarantees to agricultural producers and rural small business for assistance with purchasing renewable energy systems and making energy efficiency improvements.
This nationally competitive grant covers 25% of the cost of the project (up to $500,000) and can be coupled with a guarenteed loan, which can cover up to 50% of the total project cost. To qualify for these grants the project must be for an agricultural producers or rural small business. For more information on this program visit the USDA Secion 9006 website.
Kentucky Renewable Energy Incentives
Kentucky Renewable Energy State Tax Credit (Personal) (more info)
The maximum tax credit allowed per taxpayer is $250 for geothermal technologies, and $500 for solar hot water and wind technologies. In addition, Kentucky residents may take a credit equal to $3.00 per watt (DC) of rated capacity for the installation of a photovoltaic (PV) system, with a maximum credit of $500.
To be eligible, wind and solar hot water equipment must have a manufacturer’s warranty of five years or more. Solar hot water systems must also have an installer's warranty of two years or more, and must use collectors certified by the Solar Rating and Certification Corporation (SRCC) under OG-100. Solar energy systems must be installed by a North American Board of Certified Energy Practitioners (NABCEP)-certified installer. PV panels and inverters must meet article 690 of the National Electrical Code (NEC) and be certified by Underwriters Laboratories (UL).
Wind turbines must meet the wind industry consensus standards developed by the American Wind Energy Association (AWEA) and U.S. Department of Energy. Wind turbines must also meet the requirements of article 705 of the NEC, and must be UL-certified. Geothermal systems must meet certain guidelines for their Energy Efficiency Ratio (EER) and Coefficient of Performance (COP).
Kentucky Renewable Energy State Tax Credit (Corporate) (more info)
Solar and wind technologies have a maximum tax credit of $500 if installed on a single family residential rental unit, and $1,000 for multi-family residential rental units or commercial property.
Kentucky corporate taxpayers may also take a 30% tax credit, up to $250, for closed-loop geothermal heat pumps, open-loop geothermal heat pumps, direct expansion (DX) geothermal heat pumps installed on single or multi-family rental residential properties which they own. This is not applicable to any other commercial property.
To be eligible, wind and solar hot water equipment must have a manufacturer’s warranty of five years or more. Solar hot water systems must also have an installer's warranty of two years or more, and must use collectors certified by the Solar Rating and Certification Corporation (SRCC) under OG-100. Solar energy systems must be installed by a North American Board of Certified Energy Practitioners (NABCEP)-certified installer. PV panels and inverters must meet article 690 of the National Electrical Code (NEC) and be certified by Underwriters Laboratories (UL).
Wind turbines must meet the wind industry consensus standards developed by the American Wind Energy Association (AWEA) and U.S. Department of Energy. Wind turbines must also meet the requirements of article 705 of the NEC, and must be UL-certified. Geothermal systems must meet certain guidelines for their Energy Efficiency Ratio (EER) and Coefficient of Performance (COP).
Renewable Energy Loans for Small Businesses, Non-profits, Schools, and Municipalities (more info)
The Mountain Association for Community Economic Development (MACED) offers loans to small and mid-sized businesses, non-profits, schools and municipalities to improve energy efficiency through its Energy Efficient Enterprises program. Commercial loans can be used to purchase a wide-variety of equipment and to pay for energy efficiency upgrades and renewable energy installations. The micro-loans (up to $10,000, paid back within 4 years) may be used for lighting upgrades and the purchase of energy efficient, ENERGY STAR appliances. The program is flexible; the loans are designed to finance energy efficiency projects that maintain a positive cash flow due to the resulting energy savings. MACED has an energy specialist on staff to provide technical assistance to businesses and/or building contractors.
There is also financing available to pay for training, certification, travel and exams for installers of energy efficient and renewable energy systems.
Commercial loans are made throughout MACED's service area, which includes 54 Appalachian counties in Kentucky (as designated by the Appalachian Regional Commission).
Kentucky Net Metering and TVA Generation Partners
Kentucky Net Metering (more info)
In April 2008, Kentucky enacted legislation (SB 83) that expanded its net-metering law by requiring utilities to offer net metering to customers that generate electricity with photovoltaic (PV), wind, biomass, biogas or hydroelectric systems up to 30 kilowatts (kW) in capacity. The Kentucky Public Service Commission (PSC) issued rules on January 8, 2009. Utilities have 90 days from that date to file tariffs that include all terms and conditions of their net-metering programs, including interconnection.
TVA Green Power Switch Generation Partners Program (more info)
The
Tennessee Valley Authority (TVA) offers a production-based incentive
for solar PV and wind projects to residents through participating power
distributors. This program, known as TVA Green Power Switch Generation Partners Program,
works by purchasing 100% of all green power generated by a residential
owned system at a rate of $0.03 plus the retail rate (currently around 9-10 cents/kWh) per kilowatt-hour for the duration of 10 years. TVA
also provides an initial payment of $1000 to those customers who chose to generate their own
power. To qualify for the program, a system must be greater than 500 W
installed capacity, but may not be greater than 50 kW AC installed
capacity. The system must also be connected to the grid with a lockable
disconnect and be UL certified.
| Commercial Wind System Financing
Production Tax Credit (more info)The federal Renewable Electricity Production Tax Credit (PTC) is a
per-kilowatt-hour tax credit for electricity generated by qualified
energy resources and sold by the taxpayer to an unrelated person during
the taxable year. The PTC was originally enacted in 1992 but has been
renewed and expanded numerous times, most recently by H.R. 1424 in
October 2008. This legislation extended the in-service deadlines for
all qualifying technologies except Indian coal; expanded the list of
qualifying resources to include marine and hydrokinetic resources, such
as wave, tidal, current, and ocean thermal; and made changes to the
definitions of several qualifying resources and facilities.
| Resource Type | In Service Deadline | Credit Amount |
|---|
| Wind |
2009 |
2.0¢/kWh |
| Closed-loop Biomass |
2010
|
2.0¢/kWh |
| Open-loop Biomass |
2010 |
1.0¢/kWh |
| Geothermal Energy |
2010 |
2.0¢/kWh |
| Landfill Gas |
2010 |
1.0¢/kWh |
| Municipal Solid Waste |
2010 |
1.0¢/kWh |
| Qualified Hydroelectric |
2010 |
1.0¢/kWh |
| Marine and Hydrokinetic (150 kW or larger)* |
2011 |
1.0¢/kWh |
| Refined Coal |
2009 |
$5.877/ton |
| Indian Coal |
2008 |
$1.544/ton |
Tennessee Reduced Property Tax for Wind Energy Systems (more info)
Tennessee House Bill 809, enacted into law in Public Chapter 377, Acts of 2003 and codifed under Title 67, Chapter 5, states that wind energy systems operated by public utilities, businesses or industrial facilities shall not be taxed at more than one-third of their total installed cost. This law applies to the initial appraisal and subsequent appraisals of wind energy systems.
Clean and Renewable Energy Bonds (more info) The federal Energy Tax Incentive Act of 2005, under Title XIII of the federal Energy Policy Act of 2005 (EPAct 2005), established Clean Energy Renewable Bonds (CREBs) as a financing mechanism for public sector renewable energy projects. This legislation originally allocated $800 million of tax credit bonds to be issued between January 1, 2006, and December 31, 2007.
Following the enactment of the federal Tax Relief and Health Care Act of 2006, the Internal Revenue Service made an additional $400 million in CREBs financing available for 2008 through Notice 2007-26. In February 2008, the IRS announced 312 projects eligible to be financed with tax-credit bonds under the CREBs program. CREBs may be issued by electric cooperatives, government entities (states, cities, counties, territories, Indian tribal government, or any political subdivision thereof), and certain lenders. Of the $1.2 billion total of tax-credit bond volume cap allocated to fund renewable-energy projects, state and local government borrowers are limited to $750 million of the volume cap, with the rest reserved for qualified mutual or cooperative electric companies.
CREBs are issued with a 0% interest rate. The borrower pays back only the principal of the bond, and the bondholder receives federal tax credits in lieu of the traditional bond interest. Tax credit funds are allocated by the U.S. Treasury Department. The tax credit rate is set daily by the U.S. Treasury Department and may be taken quarterly on a dollar-for-dollar basis to offset the tax liability of the bondholder.
CREBs differ from traditional tax-exempt bonds in that the tax credits issued through CREBs are treated as taxable income for the bondholder. The tax credit may be taken each year the bondholder has a tax liability as long as the credit amount does not exceed the limits established by EPAct 2005.
CREBs rates are available here. For more information on CREBs, contact Tina Hill at the Internal Revenue Service at 202.283.9774.
Renewable Energy Production Incentive (more info)
The federal Renewable Energy Production Incentive (REPI) provides incentive payments for electricity produced and sold by new qualifying renewable energy facilities. Qualifying systems are eligible for annual incentive payments of 1.5¢ per kilowatt-hour (in 1993 dollars and indexed for inflation) for the first 10-year period of their operation, subject to the availability of annual appropriations in each federal fiscal year of operation.
REPI was originally authorized under Section 1212 of the federal Energy Policy Act of 1992 and had expired for new projects as of September 30, 2003. However, Section 202 of the Energy Policy Act of 2005 (H.R. 6) reauthorized appropriations for fiscal years 2006 through 2026 and expanded the list of eligible technologies and facilities owners. See the link to 42 USCS § 13317, provided above, for details.
Eligible electric production facilities include not-for-profit electrical cooperatives, public utilities, state governments, Commonwealths, territories, possessions of the United States, the District of Columbia, Indian tribal governments, or a political subdivision thereof and Native Corporations. The production payment applies only to the electricity sold to another entity.
Qualifying systems must generate electricity using solar, wind, geothermal (with certain restrictions), biomass,* landfill gas, livestock methane, or ocean (including tidal, wave, current, and thermal) generation technologies. Fuel cells using hydrogen derived from eligible biomass facilities are also eligible.
If there are insufficient appropriations to make full payments for electricity production from all qualified systems for a federal fiscal year, 60% of appropriated funds will be assigned to facilities that use solar, wind, ocean (including tidal, wave, current and thermal), geothermal or closed-loop biomass technologies; and 40% of appropriated funds for the fiscal year will be assigned to other projects.
REPI complements Sections 1914 and 1916 of the Energy Policy Act of 1992, which provide tax incentives to certain private sector entities for certain types of new renewable energy facilities.
For questions concerning REPI policy issues and the availability of appropriations, email repi@ee.doe.gov. The U.S. Department of Energy point of contact on REPI implementation (facility qualifications, applications and payments) is Christine Carter.
Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. For solar, wind and geothermal property placed in service after 1986, the current MACRS property class is five years. For certain biomass property, the MACRS property class life is seven years. Eligible biomass property generally includes assets used in the conversion of biomass to heat or to a solid, liquid or gaseous fuel, and to equipment and structures used to receive, handle, collect and process biomass in a waterwall, combustion system, or refuse-derived fuel system to create hot water, gas, steam and electricity.
The federal Energy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well. The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% bonus depreciation provision for eligible renewable-energy systems acquired and placed in service in 2008. To qualify for bonus depreciation, a project must satisfy these criteria:
- the property must have a recovery period of 20 years or less under normal federal tax depreciation rules;
- the original use of the property must commence with the taxpayer claiming the deduction;
- the property generally must be acquired during 2008; and
- the property must be placed in service during 2008 (or, in certain limited cases, in 2009).
If property meets these requirements, the owner is entitled to deduct 50% of the adjusted basis of the property in 2008. The remaining 50% of the adjusted basis of the property is depreciated over the ordinary depreciation schedule. The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies.
For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click "GO" to receive the requested form or publication.
Kentucky Sales Tax Exemption for Large Wind Facilities (more info)
In August 2007 Kentucky established the Incentives for Energy Independence Act to promote the development of renewable energy and alternative fuel facilities, energy efficient buildings, alternative fuel vehicles, research & development activities and other energy initiatives. For renewable energy facilities, the bill provides incentives to companies that build or renovate facilities that utilize renewable energy. A renewable energy facility is defined as one that generates at least 50 kW of electricity from solar power or at least 1 MW from wind power, biomass resources, landfill gas, hydropower or similar renewable resources. The electricity must be sold to an unrelated party. The minimum investment in any renewable energy facility must be $1 million in capital expenditure which is defined to include various non-capital costs such as labor.
Companies may receive a sales tax incentive of up to 100% of the Kentucky sales and use tax paid (on or after the activation date) on materials, machinery and equipment used to construct, retrofit or upgrade an eligible project.
In addition the tax credit for renewable energy facilities allows approved facilities to receive a credit up to 100% of Kentucky income tax and the limited liability tax for projects that construct, retrofit or upgrade facilities that generate power from renewable resources.
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