Financial Incentives to
Encourage Wind Power
System Production
Sasha Kemmet
Iowa State University
Presentation Overview
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Issue Definition
Background Information
Current Federal Financial Incentives
State and Local Financial Incentives
Recommendations
Summary
Questions
Acknowledgements
Issue Definition
• U.S. recognizes need for clean and
sustainable power
• Traditional generation methods receive
substantial government support
• President George W. Bush recognizes the
potential of wind power to provide up to
20% of the nation’s energy needs
• Wind power provides zero-emission
energy at an economically competitive
price
Background
Feasibility
• Broad public support: 88% of Americans
support expanding wind farms
• Advancements in turbine technology
• Public Utility Regulatory Policies Act
(PURPA): Requires utility buy back
• Wind intermittency poses challenges
• Transmission costs add a significant cost
Background
Environment
• Electricity
generation CO2
emissions
– Coal: 1,787
million metric
tons
– Natural Gas: 337
million metric
tons
• Coal has the
highest carbon
intensity
• A 1 MW turbine
displaces 1,800
tons of CO2
Background
Cost of Wind-Power Systems
Price per kW
Small Scale
$2,400 - $3,000
Medium Scale
$1,500 - $2,500
Large Scale
$1,000 - $2,000
Remote
$4,000 - $5,000
• Transmission lines extension imposes
significant cost
• Annual operating expenses are part of
system cost
Federal Financial Incentives
Production Tax Credit (PTC)
Explanation and Benefits
• The Energy Policy Act of 1992: established PTC
• Provide a proportional annual tax credit
• Currently set at 1.9 cents/kWh
• Available for the first 10 years of a generator’s operation
Concerns
• Reduced by grants, tax-exempt bonds, and subsidized
financing
• Cannot absorb total benefit
• Do not help projects sustain debt
• Delayed renewal causes significant problems
Federal Financial Incentives
Production Tax Credit
Effect of Delayed PTC Renewal
Federal Financial Incentives
Project Loan Guarantee
Explanation and Benefits
• Ensures loan repayment
• Reduces transaction cost and institutional
barriers
Concerns
• May reduce PTCs
• High administrative costs
• Often do not help investor obtain a private
loan
State and Local Financial Incentives
Net Metering
Explanation and Benefits
• Producer is paid for the difference between
electricity generated and consumed
• Simplifies metering and interconnection
requirements
• Provides more stable revenue
Concerns
• Less incentive for larger projects
• Does not directly reduce financing costs
• Group net metering
State and Local Financial Incentives
Direct Production Incentives
Explanation and Benefits
• Similar to PTC without tax basis
• Allow investors to absorb total benefits of the
incentive
• Allow projects to sustain debt by directly
increasing revenue
Concerns
• Require administrative distribution of funds
• Subject to yearly budget appropriations
• Do not benefit off-grid projects
• Require a cash fund to be created
State and Local Financial Incentives
Government Subsidized Loan
Explanation and Benefits
• Lower transaction cost
• Lower debt costs
• Can require a technical loan application
Concerns
• Reduce PTC
• Loan defaults
• Benefit private project owners more
• Require the creation of a cash fund
Recommendations
Clear and Consistent Energy Policy
• Determine available incentives
• Long-term PTC renewal
• Eliminate the “boom-and-bust”
environment
Federal Government Subsidized Loan
•Reduce capital costs
•Model off existing programs
•Require technical application
Recommendations
Alternate Energy Revolving Loan Program
• Iowa: AERLP can serve as a model
• Funded 25 wind projects since 1996:
41,537 MWh annually
• Finances half of a project’s cost up to
$250,000 at 0% interest for 20 years
• Available to all groups except for non rateregulated utilities
• Not available to refinance existing loan
• Requires technical application
Summary
• Diversified energy portfolio to include
sustainable energy
• Wind energy is a zero-emission power
source, economically feasible, and has
broad public support
• Clear and consistent energy policy with
long term PTC renewal
• Federal government subsidized loan
• Smart investment in securing inexpensive
and clean energy for the future
Questions?
Acknowledgements
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IEEE USA
Dr. Wolf Yeigh
Erica Wissolik
Pender McCarter and Chris McManes
Chelsey MacNeill, Tony Azevedo, and
WISE Interns
• Dr. Mani Mina, Iowa State University
• Family