Wind and 1603 tax credit by Tony Green

Sign from 2009 AWEA Exhibition

I am a member of the AWEA and recently I received an email about Tax Credit 1603 which was receiving bad press by politicians using it as leverage to either get elected or win election. I thought I had a good deal for familiarity with wind from my time working sales and marketing manager. Later I determined wind installations were still being completed, although not a rate seen in previous years and 1603 was the reason why. 

The cash grant program replaced the renewable energy tax credit program which fell apart during the 2008-2009 financial crises.

The U.S. Treasury’s newly provided Section 1603 funding program as an alternative to the system that used to be in place. Under the new program, alternative energy project developers who were eligible for the production tax credit but were not able to use it due to the crisis had the option elect to receive a cash grant for a similar value. This grant proved to be critical for these development companies, above all wind energy, and their employees and new job-seekers in the industry.

The reason was many energy developers, in particular smaller firms, were not making profits. If a company does not owe any taxes they are not eligible for the credits. These companies, before the financial crisis, would sell the tax credit to a bank or some other large financial institution, which might use these credits to offset some of its taxable earnings. The renewable energy company would then apply these funds to build the project. The economic emergency put an end to this model, as the tax equity partners disappeared leaving developers with credits they could not use. The cash grant program rectified this situation by providing the option of a cash award in lieu of the tax credit. In addition, the program resulted in needed cash going straight to alternative energy developers as the economy struggled out of the recession. The actual cost to the government remained the same because the net cost of giving out a grant to a developer is identical to the cost of providing a credit. It turned out to be a workable method of using existing federal resources to boost economic recovery for all developers, but for renewable energy developers who do not otherwise owe taxes, the value is significantly greater.

I also learned the program is set to expire at the end of this year. Interestingly enough since oil, gas, coal, and nuclear industries all have permanent incentives I though wind would be in line to receive incentives.  Unless Congress acts soon to extend the 1603 plan the wind industry will be stall once again.

In a country that is looking for clean source of alternative energy to provide high quality jobs to Americans is this something we as a nation want to partake in?  What are the oil and gas industries contributions to pulling this country of its recession?