Benchmarks

The federal production tax credit and renewable portfolio standards interact in interesting ways.

Renewables still cost more than conventional generation, but who pays? Platts Research & Consulting has just completed research and modeling for our first renewables forecast, the Renewable Power Outlook 2003. Among other things, we researched the major drivers for renewables in all states. In particular, the two major policy drivers for renewables in the United States-the federal production tax credit (PTC) for wind, and state renewables portfolio standards (RPS)-interact in interesting ways.

RPS laws, usually structured as a renewables percentage requirement on electricity sellers, take advantage of the current PTC fund structure. The PTC provides a 1.8 cents/kWh tax credit to wind generation projects for their first 10 years of operation.

Wind is the economic renewable of choice in many states today, so an RPS requirement will be met primarily with wind generation. In this scenario, the PTC incentive should cover a large fraction of the above-market costs of wind energy, providing the state's customers with the benefits of renewables while minimizing their costs.

A simple example helps to illustrate the benefits of the PTC: A 100-MW wind farm built in 2003 will receive about $5.5 million in production tax credits per year for 10 years. Implementing an RPS law steers the benefits of avoided federal taxes into a state. Of course, the PTC beneficiary and owner of the renewable plant may be based out-of-state, but at least the PTC should keep the costs of renewable energy low for a state's electric ratepayers.