New Federal Windfall for 'Community Wind' Farms

It’s no secret that large wind farm developers have been the happy winners of policies spawned by the federal stimulus package passed last February. Heck, the wind companies have gobbled up so much money from some of these limited-time programs so far that the solar energy industry is worried it will get very little at the end. But a new report from the Lawrence Berkeley National Laboratory says one of the biggest beneficiaries of the stimulus package will be the so-called community wind farms, which are typically smaller wind projects, many of which have had trouble in the past competing for both investments and turbine supplies against their large commercial counterparts.

For the first time in several years, community wind farm developers — which are defined by the report as local owners and operators (not utilities) instead of national or international developers — can rely on more federal aid and circumvent some pesky regulations that made it difficult to complete their projects before. The stimulus package now allows wind companies to opt for a 30 percent investment tax credit or the cash equivalent of that amount, instead of the production tax credit, the report said. The investment tax credit or the cash, which is based on the amount of money spent on building a project, is more valuable for these smaller project developers than the production tax credit because community wind power plants generally are more costly to build install per kilowatt of generation capacity and generate less power than the utility-size farms.

The investment tax credit and grant programs also do away with other rules that have limited community wind farm build-outs in the past. The programs exempt the recipients from the alternative minimum tax, whereas the production tax credit program exempts only the first four out of 10 years of a project’s operation, the report said.

The production tax credit is clearly less attractive to community wind developers than the investment tax credit. The production tax program requires wind farm owners to also be operators; the investment tax and grant programs do not, and that opens up leasing opportunities. The amount of production tax credit could also be lowered if a wind farm operator receives federal or local government loans or grants for building the project.

To prove its point, Berkeley Lab showed that a 10.5-megawatt community wind farm that takes advantage of the cash grant instead of the production tax credit could lower the amount of cash revenue that needs to be generated to hit its investor’s target return by $40 per megawatts-hour. Of the $40/MWh, $15/MWh would come from using the grant and the rest from avoid tax and other penalties.

Although the stimulus programs are a nice boon for community wind project developers, they aren’t going to be around for long. A project must be operating by the end of 2012 to qualify for the investment tax credit. For the grant, a project has to be online by the end of 2010 or at least start construction by that time and begin generating power by the end of 2012. So far, the government has doled out just over $1 billion from the cash program, and Iberdrola, a Spain-based commercial wind farm developer, has gotten about $546 million.

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