Wind credits will be 1.9¢ a kilowatt hour in 2005 | Norton Rose Fulbright
Tax credits may be claimed on electricity from geothermal and solar projects at the same rate. Tax credits for producing electricity from biomass will remain unchanged at 0.9¢ a kilowatt hour.
Owners of wind farms and geothermal and solar power plants in the United States can claim tax credits on the electricity they sell to unrelated parties. Projects must be put into service by the end of 2005 to be eligible. President Bush has asked Congress to extend the deadline for wind farms by another two years.
Credits may be claimed on the electricity output from wind farms for 10 years after a project is put into service. They run only five years for geothermal, solar and biomass projects. Biomass plants qualify for only half the normal tax credit, or 0.9 a kWh. The credits are adjusted each year for inflation. The IRS said inflation was enough last year to increase the credit slightly for wind farms and other projects, but not for biomass.
The credits will phase out if the average contract price for electricity reaches a high enough level that the tax subsidy is no longer needed. The IRS said that level is 10¢ a kilowatt hour for electricity sales during 2005. Separate average contract prices are computed for electricity sales from each type of “fuel.” A phaseout would occur as the average contract price moves across a range of another 3¢ above the start of the phaseout range.
There is little chance of a phaseout during 2005; the IRS said the average contract price for 2004 sales in the wind market was only 4.85¢ a kWh. Only sales under post-1989 contracts are taken into account. Spot sales through power pools are ignored.