The Production Tax Credit: Getting More Credit Than It's Due?
State government may have done more for wind power than PTC ever did.
Supporters of wind power in the United States are rejoicing over a two-year extension of the federal wind energy Production Tax Credit (PTC) included in the economic stimulus package signed into law on March 9. The industry lobbied hard for the extension, arguing the tax credit has been critical to the growth of wind power in the United States, and projecting stagnation and possible demise of the industry if Congress did not re-enact the PTC. Although federal regulators have been working to establish conditions that will foster more open markets for electricity, including greater use of renewable energy, there are many other factors stimulating growth in U.S. wind power development that have not made the news and are, in fact, more important than the PTC.
So far, restructuring of the electric industry has occurred primarily through actions taken by individual states. Because attributes of wind energy provide significant social benefits-such as zero emissions and renewable energy supply that are not fully reflected in the market price-state governments have used public funds for a variety of programs promoting renewable energy resources and technologies. These include tax incentives, direct payments, low-cost capital programs, distributed power policies, consumer choice programs, environmental regulation, Renewable Portfolio Standards (RPS), and deregulation of wholesale, transmission, and retail markets. Our analysis of state policies and incentives for wind power indicates that the PTC has not provided as much stimulus to the market as green power programs, state renewable portfolio standards, investment tax credits, and low-cost loans.
The PTC was first enacted in 1992 as part of the Environmental Policy Act. It was originally scheduled to expire in 1999, but was extended to Dec. 31, 2001. The law provides a 1.5 cent/kWh tax credit for electricity generated from wind turbines, adjusted for inflation. When it expired last year, it provided 1.7 cents/kWh. In view of the trends in new wind power additions and the scheduled expiration of the PTC-first in 1999 and then again at the end of 2001-it is easy to see why the surge in new wind power projects across the country is widely attributed to the PTC ().
A Closer Look at the Data
The effect of the PTC is not apparent when the relationship between policy and growth in wind power is analyzed at the state level rather than the national level. We collected state level data on annual additions of new wind power capacity from 1990 to 2001, along with state wind energy potential (MW), policy incentives for utility-scale wind power including RPSs, green power programs, investment tax exemptions, low-cost loans, and state production incentives. There were 26 states with at least 0.5 MW of wind power capacity installed sometime during this period. 1 Our analysis included annual data from these states.
Table 1 presents a summary of the policies across the 26 states with installed wind capacity that had such policies in force each year from 1990 through 2001. Several important incentives have become more popular recently. In particular, many more states