The U.S. government could sustain support for the solar and wind industries at a much lower cost to taxpayers than with current incentives by replacing tax credits with cash incentives, according to a new report by Climate Policy Initiative (CPI).
‘Policymakers support renewable energy because it generates many benefits for the American people,’ says Kath Rowley, director of CPI's U.S. 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.’
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 that current federal policies are sustained, performance and technology improvements mean that 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. According to CPI, 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 do not need tax equity partners; this makes the system more cost-efficient.
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, the report says.
– 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 U.S. over the past four years, including project costs and timelines, project performance and project financial structures.