WIND CREDITS remain unchanged at 1.9¢ a kilowatt hour during 2006, the IRS said in midApril.
It also said the average price at which wind electricity is sold under contract in the United States took a dramatic plunge last year. The average price for such contract sales in 2004 was 4.85¢ a kilowatt hour. In 2005, the average price dropped to 2.89¢ a kilowatt hour.
Tax credits may be claimed during 2006 at the same 1.9¢ rate for electricity from geothermal steam or fluid, “closed-loop” biomass and sunlight. “Closed-loop” biomass means plants grown exclusively for use as fuel in power plants.
The only solar projects that qualify are ones that went into service by December 2005. Other projects have until December 2007 to be put in service.
The IRS said the tax credit for other types of renewable electricity during 2006 will be 1¢ a kilowatt hour. This is a slight increase in the credit amount for such projects from the year before. Credits may be claimed at the 1¢ rate on electricity generated from “open-loop” biomass, landfill gas and municipal solid waste and on the incremental electricity generated by adding turbines to existing hydroelectric dams.
The credits are called “production tax credits.” They are claimed by the owner of the power plant and run for 10 years after the plant is first put into service. Congress has extended the deadline to put eligible projects in service several times in the past, and there is hope that it will do so again. The two senior members of the Senate tax-writing committee — Senator Charles Grassley (R.- Iowa) and Max Baucus (D.-Montana) — said in March that they want to extend the deadline by another three years through 2010.
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 a phaseout will start in 2006 if the average electricity prices reaches 10.38¢ a kilowatt hour. Separate average contract prices are computed for electricity sales from each type of renewable “fuel.” The phaseout would occur as the average contract price moves across range of another 3¢ above the start of the phaseout range.
Only sales under post-1989 contracts are taken into account. Spot sales through power pools are ignored.