Incentives Watch: Impact of State Wind Incentives Questioned, as Federal Credit Set to Expire


With the federal tax credit for wind power set to expire at the end of 2012, industry representatives have said that they are hesitant to move forward on future projects before the incentive is in place for future tax years.

If the federal production tax credit expires, what impact will this have, if any, on the state tax incentives for wind energy?

Forty one states have some type of wind energy tax incentive, including income tax credits, renewable energy grants, sales and use tax exemptions, and property tax exemptions, according to Bloomberg BNA’s Green Incentives Navigator. 

A study of how state incentives interact with the federal production credit concludes that “[s]tate tax incentives alone are often not sufficient to encourage substantial wind power development without other supportive public policies such as renewable energy purchase mandates, renewables portfolio standards, or system-benefits charges . . .” However, the study points out that, depending on the size of the tax incentive and the cost of wind power locally, state tax incentives may be enough to encourage the development of wind energy. 

Some wind industry executives believe that state renewable portfolio standards alone aren’t enough to push the wind industry ahead, according to a recent article in the BNA Daily Tax Report.  These executives argue that the federal production tax credit is the main stimulus for growth in the wind energy market and that, without extending the federal credit, numerous jobs will be lost and business will decline dramatically. 

However some believe that state mandates are more important than the federal production tax credit, according to an article from the Daily Energy Report.  Wind growth is the best in states that have renewable energy programs set up to drive the demand for wind energy, the article points out. As a result, it concludes that the expiration of the federal production tax credit would not have as big an effect on the wind energy market because the market is affected by numerous other factors, such as the price of natural gas. Since sizeable shale gas reserves have recently been discovered that will drive down the price of natural gas through 2020, it is expected that demand for wind energy will also be lowered. 

If the federal production tax credit expires, the wind industry would have to depend solely on state tax incentives. However, it is unclear if these incentives are enough to spur growth, especially because of the role of other economic factors, such as the price of natural gas and the state of the economy, which will affect the overall demand for wind energy  ­­­­

In other developments . . .

Michigan recently enacted legislation that makes wind turbines ineligible for the industrial personal property tax credit. For more information about the legislation, check out this Weekly State Tax Reportarticle by Bloomberg BNA State Tax Law Editor Nadine Gjurich.

By: Kathleen Caggiano

Join Bloomberg BNA's State Tax Group on LinkedIn.