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What Is A Production Tax Credit?

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The Production Tax Credit (PTC) was originally authorized by the Energy Policy Act of 1992 to provide a 10-year, inflation-adjusted tax credit based on the energy produced by qualified wind, solar, geothermal, open and closed-loop bioenergy using dedicated energy crops and small hydroelectric projects, among other technologies. Since the EPA was passed in 1992, the PTC has been renewed several times since the original legislation. Generally, wind and closed-loop geothermal projects continue to receive the entire credit of $21/MWh, as of 2009, while other eligible technologies receive half the credit. Additionally, the PTC continue to require the sale of electricity to an unrelated party, and limitations related to eligibility with other public sector grants, tax-exempt bonds, and other federal tax credits remain. The American Recovery and Reinvestment Act of 2009 (ARRA) extends the credit for wind projects, the largest producer of renewable energy, placed in service prior to the end of 2012 and for other technologies through 2013.

It is vital that the government maintain the production tax credit without any delay, as it is a major contributor to the growth of the wind industry and renewable energy in general. The graph below illustrates the negative impact of the expiration of the PTC on installation of new wind power generation facilities.

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About the Author:
Vert Investment Group ("Vert") is a leading renewable energy investment advisory firm focused on small to medium-sized utility-scale generation projects in strong power markets. Vert utilizes its proven methodology, the Staged Progression Model, to guide development projects to construction ready and identify investment opportunities that generate out-sized returns.

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