state incentives

Given the limited number and applicability of federal incentives for wind energy, wind development thrives most in states with strong public policy and renewable energy goals. Below is a listing of different approaches states have taken to help support wind energy.

 Clean Energy Funds. Fourteen states around the U.S. have established clean energy funds to promote renewable energy and clean energy technologies: Arizona, California, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Washington, and Wisconsin. For more information, visit the Clean Energy States Alliance website:

Sales Taxes: Fourteen states exempt wind energy equipment from sales taxes: Several states have property tax incentives for wind energy.

Investment Tax Credits. Only a handful of States still have these credits. These include Hawaii, Massachusetts, Montana, North Carolina, Oregon and Utah.

Property Tax Reductions. Reductions in property taxes can be used to promote wind development by decreasing the tax burden associated with owning a wind power facility. The tax burden is relatively high compared to fossil energy because of the greater land requirements per unit of output. This policy is an effective incentive in a number of States. For example, it is estimated that in Minnesota, where property taxes are high, property tax exemptions could reduce levelized costs by 1.0 cent per kilowatt hour in some cases.(12) The disadvantage of this mechanism is that it produces an incentive for development, not a market per se.

Accelerated Depreciation. Tax depreciation is a non-cash expense meant to approximate the loss of asset value over time, and is defined as the portion of an investment that can be deducted from taxable income in any given year. The Tax Reform Act of 1986, which established the modified accelerated cost recovery system (MACRS), set the current rules for federal tax depreciation. Under MACRS, wind property is currently provided a depreciation life of 5 years, substantially shorter than the 15 to 20 year depreciation lives of non-renewable power supply investments. Faster depreciation results in tax benefits early in a project's life, and is preferred by investors because an after-tax dollar is worth more today than in later years.

Direct Production Incentives. Although similar to a production tax credit, direct production incentives provide cash income directly. At the Federal level, Section 1212 of Energy Policy Act of 1992 (EPACT) provides a "Renewable Energy Production Incentive" (REPI) of 1.5 cents per kilowatt hour to non-profit organizations that own wind facilities.

Direct Investment Incentives (Grants). These include programs like the Department of Energy's Turbine Verification Program in which cost sharing with utilities permits early development of wind systems preceding full-scale deployment of turbines. It also includes State monies used for seed grants to conduct resource assessments and feasibility studies.

Government Subsidized Loans. Utility-scale wind system debt interest rates typically are 1 to 2 percent higher than rates for gas-fired projects. Subsidized loans can be provided at below market interest rates, thus reducing loan payments and levelized costs. Although there is no federally subsidized loan program, a number of States including Minnesota have them. While this type of program promotes wind energy, the effect is insufficient to make wind competitive.

 "Standard Offer Contracts" for Small and Distributed Projects. During the 1980's, "Standard Offer 4 Contracts," that guaranteed prices 10 years into the future (and saved on transaction costs), were instrumental in the development of wind energy. The guaranteed prices were based on each utility's "full avoided cost" of marginal generation assuming escalating energy prices (which did not materialize). As these contracts have been renewed, the new prices have been much lower and threaten the viability of operating wind generators.

Net Metering or Net Billing. Under this system, utility customers are guaranteed a market for their power by being permitted to operate a "reversible meter." When customers use more electricity than they generate, they pay for the additional electricity at retail prices as usual. Conversely, when customers generate more electricity than they use, the electric utility is obliged to purchase the additional electricity. The prices customers receive for their excess electricity varies widely by State and region and between wholesale and retail levels. So far, experience for wind and net metering is limited. Although California has a provision for net metering, it excludes wind as a source. Other States limit the size of eligible projects, so larger wind projects (greater than 50 or 100 kW) cannot participate.

Site Prospecting, Review and Permitting. Programs in California and at the Federal level have been developed to conduct site resource assessments, evaluate transmission issues, conduct bird population studies, settle zoning issues, and streamline permitting processes. This helped to promote the early development of wind energy projects in California. The U.S. Department of Energy Utility Wind Resource Assessment Program performed a similar function in later years.

Renewable Portfolio Standard (RPS). The terms of renewable portfolio standards vary among States, but an RPS generally requires every retail power supplier to provide a certain minimum percentage (or floor) of electricity from specified renewable sources for a given time period. A RPS can operate in tandem with a credit trading system, so suppliers sell credits for extra renewable power they generated or vice versa. If they are short of renewable power they can purchase credits to make up the difference to settle their account.(13) Legislation establishing some sort of renewable portfolio standard has passed in a number of states including Arizona, Maine, Massachusetts, and Nevada.

Renewable Setasides. In California, a recent ruling provides for a 0.7-percent surcharge on electric bills to support renewables during the four-year transition to a competitive market. Wind energy is earmarked to receive $70 million of an estimated $540 million total budgeted.(14), (15) Already, some 300 megawatts of new wind energy projects have won the opportunity to receive California Energy Commission financial incentive funds.(16)

Auctioned Contracts. Increasingly, electric utilities have acquired renewable energy competitively by issuing request for proposals (RFP's), which generator owners can bid on. In effect, the bidder guarantees to provide a given amount of electricity under specified terms for a given price. To date, most of these RFP's were issued as renewable only or technology specific only.

Green Marketing/Pricing. These are voluntary programs in which customers agree to pay a premium to purchase "environmentally friendly" or "green" electricity. This encourages development of a market for renewable power, wind included. So far, public response has been limited. It is estimated that only 1 to 4 percent of residential consumers will participate in the near future in California's green pricing program.(17) Although there is some difficulty in determining what the premium should be,(18) utilities like Sacramento Municipal Utility District and Traverse City Light and Power have begun to use green pricing to stimulate renewables development. In Sacramento, customers pay an additional $4 per month special premium to have a photovoltaic system installed and operating on their rooftop.

State Mandates. These provisions differ for each State. In Minnesota, the State legislature has required Northern States Power to phase in construction of 425 megawatts of new wind capacity by 2002 as compensation for being allowed to store nuclear waste on site. In Iowa, the Alternative Energy Law (AEL) requires investor-owned utilities to purchase a combined total of 105 megawatts of their generation from renewable and small hydropower sources. The majority of needed capacity will be from wind power and biomass applications.