Federal and state incentives have long been viewed as a means of supporting renewable energy technological developments and to help reduce the up-front cost of purchasing renewable energy systems. As a result, wind-based electricity is becoming increasingly cost-competitive with fossil-fueled electricity.

Although the state does not have a program at this time that provides funding of renewable energy equipment on an individual basis, there are tax exemptions available in certain instances. For example businesses that either use or manufacture or install wind energy generators can receive franchise tax deductions and/or exemptions. There also exists a property tax exemption involving wind energy generation for business installation or for the construction of such systems. See:

Texas Tax Code Incentives for Renewable Energy Systems
Property tax exemptions, franchise tax exemptions, and franchise tax deductions.

Texas residents can also check with their local utility providers, as some have energy efficiency programs that offer low cost loans/rebates and advice on renewable energy technologies.

Federal Renewable Electricity Production Tax Credit

Scheduled termination: January 1, 2008 for renewable resources.
Qualified applicants: Taxpayers who produce electricity from qualified resources and sell that electricity to an unrelated person during the taxable year.

The Production Tax Credit (PTC) is a per kilowatt-hour tax credit for electricity generated by qualified energy resources. Together, the PTC and the Texas Renewable Portfolio Standard have spurred wind industry growth in the state. The PTC is the most important federal financial incentive encouraging investment in wind power, a critical factor in financing new wind farms. As authorized by the Energy Policy Act of 1992, the PTC provides a production tax credit for power generated by certain types of renewable energy projects, including wind power. Available during the first 10 years of operation, the PTC provides a 1.5¢/kWh credit, adjusted annually for inflation, for wind. Adjusted for inflation, the 1.5 cent/kWh tax credit is currently valued at 1.9 cents/kWh. For a detailed explanation and timeline of the PTC, see this DSIRE web page.

Corporate Tax Credit
The PTC is a corporate income tax credit. The bill does not include an incentive for small wind systems for homeowners and small businesses. According to AWEA and Windustry, this makes it difficult for small wind system owners such as farmers, communities, schools, and municipal utilities to use the production tax credit effectively. See Windustry's Community Wind Public Policy page, which discusses this aspect of the PTC.

The tax credit is not an outright payment for the production of wind energy; rather, as a tax credit, it can be used to reduce the amount of taxes a business owes, making a wind farm much more competitive with traditional coal-fired or gas-fired electricity generators. A business can take the credit by completing Form 8835, Renewable Electricity Production Credit, and Form 3800, General Business Credit.

Production Tax Credit Extensions
The Energy Policy Act of 2005 modified the credit and extended it through December 31, 2007 (see the Energy Policy Act of 2005, Section 1301). In December 2006, the credit was extended again through December 31, 2008 by Section 207 of the Tax Relief and Health Care Act of 2006 (H.R. 6111). The bill maintains all aspects of current PTC law. That includes a credit price of 1.9 cents per kWh, an annual adjustment for inflation, and a 10-year term for wind turbines to generate credits.

Production Tax Credit - IRS Contacts

Information Specialist - IRS
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224
Phone: (800) 829-1040
Web site: http://www.irs.gov

2006 Internal Revenue Bulletin: 2007-21
Credit for Renewable Electricity Production, Refined Coal Production, and Indian Coal Production, and Publication of Inflation Adjustment Factors and Reference Prices for Calendar Year 2007. This notice contains detailed information on the production tax credit. Contact person: David A. Selig, Office of Associate Chief Counsel, at (202) 622-3040 (not a toll-free call).

Production Tax Credit Limitations
The PTC has been a critical factor in financing new wind power installations, but it cannot be consistently counted on because Congress has not locked it in as a long-term incentive. Since its inception, the PTC has expired and later been renewed three times in seven years, and was due to expire again at the end of 2007. This uncertainty creates an instability within the wind industry, making long-term planning problematic. Without assurances of the PTC's continued support, accelerated wind development will remain intermittent. Because has been extended, new wind power generation has been on the rise; but the American Wind Energy Association (AWEA) advises that a long-term extension of the tax credit is vital to sustain this growth and to avoid a boom-and-bust cycle in the wind industry.

Double-Dipping
Another limiting factor for wind energy development is the PTC provision that limits "double-dipping" for public incentives. To eliminate double dipping, the PTC is reduced for any local, state, or federal grants, subsidized energy financing, and any other credits, by a rate equal to the amount of other public money used for the project over the total project cost. The purpose of this provision is to prevent "excessive" reliance on government assistance.

Farm Bill 2002

The Farm Security and Rural Investment Act of 2002 authorized $115 million for the U.S. Department of Agriculture (USDA) to provide assistance for renewable energy projects, including wind power. Section 9006 of the bill directed the USDA to create a program to help farmers, ranchers and rural small businesses pay for renewable energy and energy efficiency projects. The 2006 program offered both grants and guaranteed loans for eligible projects.

To assist the USDA in interpreting Section 9006, the GAO published a report, Wind Power's Contribution to Electric Power Generation, which examines the various aspects of leasing land for wind turbines.

USDA Rural Development, Section 9006
This is the U. S. Department of Agriculture (USDA) web site for the Section 9006: Renewable Energy & Energy Efficiency Program with information on grant and guaranteed loans for agricultural producers and rural small business to assist with purchasing renewable energy systems and making energy efficiency improvements. The information includes details on project and applicant eligibility, application procedures, required forms and other useful information to assist in the application process.

USDA Rural Business Cooperative Service
This USDA web site provides information to assist farm, ranch and small business in the area of renewable energy and efficiency. This program promotes economic development by supporting loans to businesses through banks and community-managed lending pools and offers technical assistance and information to help agricultural and other cooperatives get started and improve the effectiveness of their member services.

Additional Resources

Energy Bill Extends Wind Power Incentive through 2007
This is an American Wind Energy Association press release.

USDA Renewable Energy Energy Efficiency Program
Section 9006 of the 2002 Farm Bill requires the U.S. Department of Agriculture (USDA) to create a program to make direct loans, loan guarantees, and grants to agricultural producers and rural small businesses to purchase renewable-energy systems and make energy-efficiency improvements. This program is known as the Renewable Energy Systems and Energy Efficiency Improvements Program. Eligible renewable energy projects include wind, solar, biomass and geothermal. It includes hydrogen derived from biomass or water using wind, solar or geothermal energy sources. During Fiscal Year 2006, Texas provided nearly 1.7 million for this program. For further information contact the USDA Rural Development at (254) 742-9780. Also see USDA Energy Initiatives, and the USDA Rural Development Texas State Office.

USDA Energy Matrix
This USDA web site offers comprehensive information on energy-related programs, funding opportunities, and technical support across all USDA agencies and offices.

Wind Energy in the Farm Bill
A Windustry web page.

Avoiding the Haircut: Potential Ways to Enhance the Value of the USDA's Section 9006 Program
A DOE-funded report. Focusing exclusively on wind projects, this report explores the anti-double-dipping issue and suggests some ways that the program could possibly avoid a PTC haircut. Its purpose is two-fold: (1) to inform recipients of Section 9006 grants, as well as applicants and potential applicants to the program, of the implications of the PTC's anti-double-dipping provisions; and (2) to help the USDA and related stakeholders understand the negative financial impact of such provisions, and possibly re-design the program to avoid that impact.

Wind Energy Federal Incentives and Policies
A Windustry web page with information on depreciation, bonds, new markets tax credits and more.

Analyzing the Interaction Between State Tax Incentives and the Federal Production Tax Credit for Wind Power
A DOE study prepared by the Ernest Orlando Lawrence Berkeley National Laboratory.

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