Changes to Wind Energy Tax Credits (Iowa)

April 3, 2009 | Roger McEowen

 

In late March, the Iowa Senate unanimously approved changes to the state's existing tax credit scheme as applied to wind energy production.  The changes are designed to allow more wind projects to be able to utilize renewable energy tax credits.  The legislation (SF 456) would allow private colleges and universities, community colleges, Iowa Board of Regents-controlled institutions, K-12 schools, and public hospitals to generate power for on-site use and to qualify for the existing credit of one-cent per kilowatt-hour.  SF 456 would also relax other restrictions on the type of facilities that can qualify for the credits, and would allow the credits to be sold to other entities (not related parties).  The legislation would also allow additional projects to utilize the 1.5-cent per kilowatt-hour production credit.  That credit is typically available for smaller projects. The maximum amount of nameplate generating capacity of all wind energy conversion facilities the Iowa Utilities Board may approve shall not exceed 330 MW. But, SF 456 does expand the total amount of production that can be covered under the credit, and extends the deadline for facilities to qualify for the credit. 

The Legislative Service Agency estimates that the changes to the one-cent per KwH credit would create an additional $32 million in credits between fiscal years 2012 and 2013, and that the changes to the 1.5-cent per KwH credit would generate an additional $45.3 million during the same time.  The changes would not come close to being paid for.  The Legislative Service Agency estimates that the legislation would only create an additional $15.4 million in local property tax collections during 2012-2013, and that the state would only receive about $3.9 million in increased property tax revenue.

SF 456 now moves on to the House Ways and Means Committee, which is expected to approve the measure.  Relatedly, the Iowa House is considering separate legislation (HF 748) which would take 200 megawatts of the unused 1-cent per KwH production credit and use it to establish a small wind innovation zone program which would also be administered by the Utilities Board of the Department of Commerce.  This legislation would also create a streamlined process for small wind generators (defined as having less than 100 kilowatts of generating capacity) in such an innovation zone for persons who want to connect with an electric utility.  Wind innovation zones would be required to adopt a model ordinance, and the Utilities Board would have to create a model interconnection agreement and reporting requirements for the program.  The Legislative Services Agency estimates that HF 748 would generate an additional $9.1 million in tax credits through fiscal year 2023 that would otherwise go unused. 

Note:  Given the current budget situation in Iowa, it is puzzling why the legislature would proceed with expanding existing tax credits for wind energy when the Legislative Service Agency projects additional revenue generation from the expanded credits to fall far short of offsetting the cost of the expanded credits. Politicians often cite "green" job creation associated with expanded credits for wind energy (and other "green" technology) as rationale for the push. President Obama's 2010 budget includes nearly $20 billion in tax incentives for clean-energy projects. However, a recent economic study from King Juan Carlos University in Madrid, Spain, debunks the theory that increased renewable energy subsidies result in job creation.  The study, based on Spain's experience with wind and solar energy production (in Spain, wind generates 11 percent of electrical power demand), concluded that for every new position that depends on energy tax subsidies, at least 2.2 jobs in other industries are eliminated. Further, Spain paid $775,000 for every green job they created through subsidies since 2000 ($100,000 per year per job). Why?  The researchers concluded that wind energy is very inefficient when compared to fossil fuels and generating energy from wind (and solar) causes energy prices to rise and industries to move out.  High-tech industries that rely on cheap energy, in an economic downturn, would have little choice but to move on. The study noted that Spain's Acerinox SA the nation's largest stainless-steel producer, blamed domestic energy costs for deciding to expand its operations in countries with cheaper energy costs.  The study also noted that Microsoft and Google moved their servers to the Canadian border because they benefited from cheaper energy at that location.  The author of the study is Gabriel Calzada, an economics professor at the King Juan Carlos University.