Journal of Tax Credit Investing

Wind energy tax credit still waiting for renewal

Industry experts are confident that the wind energy production tax credit, IRC Sec. 45, will be renewed as part of the massive energy bill now before Congress. The tax credit is set to expire at the end of this year. The bill is in conference committee and will probably pass before then.

"I'm very optimistic," said Peter Mandelstam, president of Arcadia Windpower, Ltd., based in New York City. "If there's an energy bill, there will be a three-year renewal."

Mandelstam, who also sits on the board of the American Wind Energy Association (AWEA), has been active in the effort to renew the credit.

The lobbying effort has included meetings with congressmen and the constant introduction of new research and ideas. "Investors and policymakers should understand that 20% of the nation's electricity capacity comes from nuclear power," Mandelstam pointed out. All of these plants have a finite life, however. The average plant is now 20 years old, and new nuclear plants are unlikely to be built.

"I suppose we could dig a lot more coal," Mandelstam said. "But we think that the most cost-effective technology is wind."

However, the huge energy bill that contains the tax credit renewal was delayed last year, in part because Congress could not decide whether to open the Alaskan National Wildlife Refuge (ANWR) to oil drilling. This dispute and others like it could stop the bill from passing again this year. In that case, industry supporters will work to have the tax credit renewed in a stand-alone bill.

In the past, the wind tax credit has earned two-year renewals and Congress has rarely renewed the credit on time. The two-year cycle of expiration and renewal has often delayed deals (see the Journal of Tax Credit Investing, Summer 2003, page 19).

It's also unknown if the renewal will include an inflation adjuster for the credit. Mandelstam is cautiously optimistic. "It's a very small price to the Treasury," he pointed out, "and the inflation adjuster is very important to the financing of these projects."

The adjuster was included in the House version of the bill, but not the Senate version. Some experts think losing the inflation adjuster could add 4% to 7% to the cost of producing wind energy if the inflation rate increases.

Advocates think the final energy bill will probably not include a national renewables portfolio standard (RPS). A national RPS was included in the Senate version of the bill that would require 10% of the nation's electricity to come from new renewable energy sources by 2020, but it was absent from the House version.

"Our champions in the White House and in the House of Representatives do not currently support a federal RPS," Mandelstam said.

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