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The Production Tax Credit: Getting More Credit Than It's Due?

State government may have done more for wind power than PTC ever did.
Fortnightly Magazine - May 15 2002

have adopted RPSs, green power programs, investment tax credits, and low interest loans over the last five years.

Regression analysis was used to estimate the effect enactment of these policies and incentives had on the amount of new large-scale wind power installed in each state. Each year, the amount of new installed wind capacity was recorded along with the status of policies and incentives. A value of one was assigned to the policy variable being tracked if it was active in that state, and zero if not. The analysis estimates the effect adoption of a particular policy or incentive has on wind power growth in that state.

Results from the Analysis

A number of interesting results emerge from the analysis. First, although the availability of wind resources is an important factor in the decision to invest in wind power, it has been only marginally significant in determining where investments are made. North Dakota, Kansas, South Dakota, and Montana are ranked 1st, 3rd, 4th, and 5th in wind energy potential, but have very little installed wind power capacity. On the other hand, California is ranked 17th in wind energy potential, but has the greatest amount of installed turbine capacity. Texas, which is ranked 2nd in wind energy potential, has experienced tremendous investment in wind power, however, this may be due more to policies and incentives in that state than to the availability of wind resources.

Enactment of the PTC was found to have no significant effect on growth in wind power. The policy took effect in 1993 and yet there was very little growth in wind power for six years. The increase in new wind power, beginning in 1998, had more to do with passage of state RPSs, adoption of green power programs, investment tax credits, and low-cost loans than to the PTC. Availability of green power programs, in particular, accounted for over 10 times as much growth in wind power than the PTC. Investment tax credits accounted for seven times as much growth, the enactment of a state RPS stimulated three times as much, and low-cost loans accounted for about twice as much growth in wind power as the PTC.

Outlook

The future impact of the PTC and these other policies and incentives may be quite different than analysis of the data from 1990 to 2001 would indicate. For instance, there is always a lag between the enactment of a mandate, such as a RPS, and the timing of new investments, since most RPSs are phased in to allow for gradual investment adjustments. Renewable portfolio standards have been enacted in 13 states. 2 As several of these states have only recently enacted RPSs, we are likely to see additions of renewable energy, particularly wind power, due to these policies over the next few years.

Green power programs have become quite popular and are being offered now by many utilities and competitive energy providers across the country. Growth in green power programs is likely to be the most important factor driving new investment in wind and other renewable energy technologies, such as biomass,