Production Tax Credit

Production Tax Credit

April 04, 2007 | By Keith Martin in Washington, DC

PRODUCTION TAX CREDITS are 2¢ a kilowatt hour for generating electricity from wind, geothermal energy or “closed-loop” biomass during 2007. 

This is an increase from 1.9¢ a kWh during 2006.

The IRS said production tax credits for generating electricity from “open-loop” biomass, landfill gas, municipal solid waste and water in irrigation ditches at small incremental hydroelectric  facilities will remain 1¢ a kWh during 2007. 

The credits are adjusted each year for inflation. Production tax credits are tax credits that reward owners of power plants for using renewable fuels.The credits are claimed on the  electricity generated and sold to third parties for 10 years after a project is originally put into  service.

Projects must be put into service by December 2008 to qualify. Congress is expected to extend the deadline in an energy tax bill later this year or early next year.

The credits will be withdrawn if electricity prices reach a phase out range. The IRS said the
bottom end of the phase out range is 10.75¢ a kWh in 2007. Credits would phase out as electricity prices move across a range of another 3¢ a kWh. The IRS looks at the average price for electricity sold from the particular renewable energy source under contracts signed after 1989. Spot prices are not taken into account. 

The agency said the average price for contracted electricity from wind farms was 3.29¢ a kWh last year. It said it has been unable to calculate the average contract price for electricity from other renewable sources, but is exploring methods for doing so with the hope of being able
to announce prices next year. 

The average price for electricity sold under contract from wind farms has fluctuated over the last several years. It fell from 4.85¢ a kWh in 2004 to 2.89¢ a kWh in 2005, before increasing last year.