When something really good is advertised at half price, my first thought is "this is too good to be true." After doing the research, if I find the deal is really all it's cracked up to be, I spread the word to as many people as I can, so they can save too.
That's why, when my research team discovered how much taxpayers stand to save through small changes to federal wind and solar policies, we quadruple-checked our numbers, asked other experts if what we were seeing was correct, and then made a commitment to let as many people know as possible.
It's no secret that wind and solar in the United States are booming. Renewable electricity generation more than doubled since 2005. While this growth was financed largely through private investment, state and federal policies played a key role in helping these new, important industries expand.
Policymakers support wind and solar because renewable energy brings many benefits for the American people. But key renewable incentives are expiring just as federal lawmakers are looking for opportunities to reduce the deficit. Policymakers understandably want to balance support for renewable energy with these fiscal pressures.
It turns out there are ways to do just that. Let me explain.
Currently, a wind facility operating by the end of 2012 receives a production tax credit (PTC) of $22/MWh for electricity generated in its first 10 years. A solar photovoltaic facility operating by the end of 2016 receives an investment tax credit (ITC) equal to 30 percent of eligible project investment costs.
Both of these federal incentives are delivered through the tax system. And while this can be a great way to deliver incentives for some industries, it turns out that it's not the most efficient way to support wind and solar.
To break it down, take wind as an example: Wind project developers have limited tax liabilities. That means that by themselves, many project developers can't use federal tax credits until years after they are received. This reduces the value of the incentives. In order to get more out of incentives, project developers bring in outside investors with tax liabilities. This is called tax-equity financing. And while this helps developers get more value from the incentives, it means a significant portion of the incentive is used up in transaction costs and complicated financial structures.
Cash incentives, on the other hand, don't have this problem. Developers can use simpler and cheaper finance, so much more of what the government spends stays with the project.
Our team was able to pinpoint the cost differences between these systems though analysis and modeling of renewable energy projects developed in the U.S. over the past four years, including project costs and timelines, project performance, and project financial structures.
We found that for wind energy, a taxable cash incentive could deliver the same support to wind projects as current policy and almost halve the cost to taxpayers. For solar, an option to take a 20 percent 1603 Cash Grant in lieu of a 30 percent ITC could increase the value of the incentive to the project while reducing the cost to government of providing it.
In a nutshell, government could sustain support for the wind and solar industries and save taxpayers money by giving incentives in cash rather than tax credits.
We all want wind and solar to succeed because moving toward clean energy will bring huge benefits to the American people. But, in a time when we are all looking for deals, there is no reason not to save money, especially when we're confident that we can get the same results.
No matter who ends up winning in November, this is a solution that all taxpayers should welcome.