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Financial Incentives to Encourage Wind Power System Production

Financial Incentives to Encourage Wind Power System Production. Sasha Kemmet Iowa State University. Presentation Overview. Issue Definition Background Information Current Federal Financial Incentives State and Local Financial Incentives Recommendations Summary Questions

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Financial Incentives to Encourage Wind Power System Production

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  1. Financial Incentives to Encourage Wind Power System Production Sasha Kemmet Iowa State University

  2. Presentation Overview • Issue Definition • Background Information • Current Federal Financial Incentives • State and Local Financial Incentives • Recommendations • Summary • Questions • Acknowledgements

  3. Issue Definition • U.S. recognizes need for clean and sustainable power • Traditional generation methods receive substantial government support • President George W. Bush recognizes the potential of wind power to provide up to 20% of the nation’s energy needs • Wind power provides zero-emission energy at an economically competitive price

  4. BackgroundFeasibility • Broad public support: 88% of Americans support expanding wind farms • Advancements in turbine technology • Public Utility Regulatory Policies Act (PURPA): Requires utility buy back • Wind intermittency poses challenges • Transmission costs add a significant cost

  5. BackgroundEnvironment • Electricity generation CO2 emissions • Coal: 1,787 million metric tons • Natural Gas: 337 million metric tons • Coal has the highest carbon intensity • A 1 MW turbine displaces 1,800 tons of CO2

  6. BackgroundCost of Wind-Power Systems • Transmission lines extension imposes significant cost • Annual operating expenses are part of system cost

  7. Concerns Reduced by grants, tax-exempt bonds, and subsidized financing Cannot absorb total benefit Do not help projects sustain debt Delayed renewal causes significant problems Federal Financial IncentivesProduction Tax Credit (PTC) Explanation and Benefits • The Energy Policy Act of 1992: established PTC • Provide a proportional annual tax credit • Currently set at 1.9 cents/kWh • Available for the first 10 years of a generator’s operation

  8. Federal Financial IncentivesProduction Tax Credit Effect of Delayed PTC Renewal

  9. Explanation and Benefits Ensures loan repayment Reduces transaction cost and institutional barriers Concerns May reduce PTCs High administrative costs Often do not help investor obtain a private loan Federal Financial IncentivesProject Loan Guarantee

  10. Explanation and Benefits Producer is paid for the difference between electricity generated and consumed Simplifies metering and interconnection requirements Provides more stable revenue Concerns Less incentive for larger projects Does not directly reduce financing costs Group net metering State and Local Financial IncentivesNet Metering

  11. Explanation and Benefits Similar to PTC without tax basis Allow investors to absorb total benefits of the incentive Allow projects to sustain debt by directly increasing revenue Concerns Require administrative distribution of funds Subject to yearly budget appropriations Do not benefit off-grid projects Require a cash fund to be created State and Local Financial IncentivesDirect Production Incentives

  12. Explanation and Benefits Lower transaction cost Lower debt costs Can require a technical loan application Concerns Reduce PTC Loan defaults Benefit private project owners more Require the creation of a cash fund State and Local Financial IncentivesGovernment Subsidized Loan

  13. Recommendations Clear and Consistent Energy Policy • Determine available incentives • Long-term PTC renewal • Eliminate the “boom-and-bust” environment • Federal Government Subsidized Loan • Reduce capital costs • Model off existing programs • Require technical application

  14. RecommendationsAlternate Energy Revolving Loan Program • Iowa: AERLP can serve as a model • Funded 25 wind projects since 1996: 41,537 MWh annually • Finances half of a project’s cost up to $250,000 at 0% interest for 20 years • Available to all groups except for non rate-regulated utilities • Not available to refinance existing loan • Requires technical application

  15. Summary • Diversified energy portfolio to include sustainable energy • Wind energy is a zero-emission power source, economically feasible, and has broad public support • Clear and consistent energy policy with long term PTC renewal • Federal government subsidized loan • Smart investment in securing inexpensive and clean energy for the future

  16. Questions?

  17. Acknowledgements • IEEE USA • Dr. Wolf Yeigh • Erica Wissolik • Pender McCarter and Chris McManes • Chelsey MacNeill, Tony Azevedo, and WISE Interns • Dr. Mani Mina, Iowa State University • Family

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