Wind developers would be helped in three ways by the final energy bill that is currently stalled in Congress | Norton Rose Fulbright
WIND DEVELOPERS would be helped in three ways by the final energy bill that is currently stalled in Congress.
The bill is a priority for the Bush administration. It passed the House in November, but fell two votes short in the Senate. The administration will try again when Congress returns in late January to find the remaining two votes. This will not be an easy task: the bill is a complicated jigsaw puzzle of provisions that help various constituencies and pit regional interests against one another.
The bill would extend a deadline for completing wind farms to qualify for a federal tax credit of 1.8¢ a kilowatt hour for generating electricity from wind. The current deadline is December this year. The new deadline would be December 2006. The credits run for 10 years after a wind farm is put into service. The tax savings from the credit pay approximately a third of the capital cost of the typical project.
The energy bill would also give wind developers modest “AMT relief.” One problem with the federal wind credit is it cannot be claimed by corporations on the “alternative minimum tax.” The United States has essentially two separate income tax systems for corporations. Corporations must calculate their regular income taxes and also their taxes under an “alternative minimum tax” that is imposed on a broader tax base but at a lower rate and pay whichever amount is greater. A company that pays minimum taxes in a year cannot use its wind credits that year. The energy bill would allow wind credits to be used in the future to offset minimum taxes, but only for the first four years after a project is put into service and then only for new projects built after the energy bill is signed by President Bush.
The energy bill would also limit a “haircut” that wind developers suffer currently when a project benefits from certain state tax credits, tax-exempt financing, government grants or subsidized energy financing. In such cases, the amount of the federal wind credit is reduced by the amount of the other benefits the project receives. The energy bill would limit this “haircut” to — at most — half the amount of the federal wind credit.
The leasing industry has pushed hard in recent years to allow lease financing to be used for wind projects. It cannot be used today because it would result in loss of tax credits for projects that use such financing. Leasing companies failed to get this into the final bill.