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How Community Ownership Can Save Wind Power

Community ownership may provide the solution for increasing resistance to wind power in the United States. 

The Community Wind Act

In October of 2011, Senators Al Franken (D-Minn.) and Jon Tester (D-Mont.) introduced a bill that would extend existing investment tax credits to small wind farms with total capacities of up to 20 megawatts (MW). The Community Wind Act would allow wind projects of this size to become eligible for the Section 48 solar, small wind, and geothermal 30% business investment tax credit (ITC). Under Senator Franken’s proposal, these smaller, community wind projects would no longer be eligible for the Section 45 production tax credit (PTC), but would instead qualify for the Section 48 ITC that is in place through 2016.

Community wind refers to smaller, locally owned wind farms. These smaller wind farms fit in seamlessly with rural communities and enjoy local support during development. The American Wind Energy Association (AWEA) defines all wind farms with a capacity of less than 20 megawatts as community wind, provided that they meet certain community support or community benefit criteria.

Due to their smaller size, community wind developments face higher up-front equipment and transactional costs per megawatt of capacity. Oftentimes, institutional wind energy investors are reluctant to provide financing for these complex, relatively small transactions. Developers of these smaller projects also face difficulties in buying a small number of turbines from equipment manufacturers and in many cases cannot effectively use the PTC currently available to larger wind farms. For these reasons, changing the tax incentive for community wind projects from a PTC to an ITC would keep this important segment of renewable energy production growing.

Local ownership of renewable energy and community wind, specifically, further enhance renewable energy’s impact on local economies. This happens because the profits generated from renewable energy production are recycled back into the community, which results in increased economic activity and job creation.

Under section 45 of the Internal Revenue Code an income tax credit is allowed for the production of electricity from qualified energy resources, including wind energy.  To be eligible for the credit, electricity produced from qualified energy resources at qualified facilities must be sold by the taxpayer to an unrelated person.

The credit is available for electricity produced from wind during the first 10 years after a qualified facility has been placed in service.  The credit does not apply to property placed in service after December 31, 2012.

Under section 48 of the Internal Revenue Code a different income tax credit based on equipment cost is allowed for certain energy property placed in service, including small wind, solar, geothermal, fuel cell, and combined heat and power system equipment.  Small wind property is wind electrical generation property of less than 100 kilowatts capacity.  The credit is 30% of the property cost.  Eligible property must be placed in service before January 1, 2016.

Under the temporary provisions in the American Recovery and Reinvestment Act of 2009, renewable energy property is eligible for a 30 percent investment credit under section 48.  The American Recovery and Reinvestment Act of 2009 (as subsequently modified in 2010) also authorizes the Secretary of the Treasury to provide a grant for renewable electricity production facilities in the amount of 30 percent of the basis of the qualified property. To qualify for the grant, a wind energy property must be placed in service in calendar years 2009 or 2010 or 2011, or its construction must begin during that period and must be completed prior to 2013, or 2017 in the case of Small Wind, under section 48.

The production credit and the temporary Treasury grant program has successfully promoted the development of large, utility-scale wind projects.  The credit, however, has been ineffective in promoting the development of small, community scale wind projects.  Although the section 45 wind production credit has been in effect since 1993, as of January 2010, community wind projects comprised only 5.6% of total installation in the United States,

Learn more here about the Community Wind Act!