Posts Tagged tax credit

Wind Turbine Payback Period

Posted by on Thursday, 1 July, 2010

Wind turbines can produce power cheaply after their installation. The question is whether it is cost effective to install them in the first place. Tax credits and other government subsidies reduce the cost of wind power. The larger scale the wind turbine is, the more efficient it is. According to Iowa State University, smaller scale systems can cost up to $3000 per kilowatt, while mid scale systems range from around $1500 to $2500, and the largest scale utility wind farms cost $1000 to $2000 a kilowatt.

As with all payback periods, borrowing money increases the payback period. Loans at a higher interest rate over longer periods of times greatly increase the payback period, although the calculation also includes the tax benefits of deducting interest expense paid on the loan to build the wind turbine. The wind turbine owner may also depreciate the cost of the wind turbine for federal and state tax purposes, including using accelerated depreciation methods such as MACRS. Penn State University provides an example of a turbine owner using a 5 year MACRS depreciation scheme. Wind turbines usually last longer than five years, although the IRS does allow machines to be depreciated for tax purposes over a shorter period than their actual lifespan. The government can also allow accelerated depreciation as a method of providing a subsidy. Wind turbines may be eligible for other federal benefits such as the REPI Credit and the Federal Production Tax Credit.

Battery storage greatly increases the cost per kilowatt hour for wind power, as it does with solar power and other intermittent sources of renewable energy. According to Iowa State, using battery storage can increase cost to $5000 a kilowatt, since a large battery can cost thousands of dollars. Grid redesign for utility power systems reduces these costs for large projects. A utility also uses several sources of power, likely including nonrenewable energy sources, so it may be able to use all of the wind power without purchasing extra storage equipment at the time of generation. If other factors are not considered the cost directly corresponds to the cost per kilowatt of the system. A system that costs twice as much per kilowatt will take twice as long to pay off.

Some projects that use wind power are not as time sensitive as other projects. Powering appliances in the home usually requires electricity at all times. A project such as using wind power to pump water for cattle does not need constant power, as long as the wind provides enough energy to fill up a tank that holds enough water for several days. Charging a battery can be performed over night, so the wind may vary in strength over night and still provide sufficient power.

Other expenses should be considered when calculating the payback period. According to Iowa State, an annual insurance premium is an important expense to include, since the turbines are valuable enough to require expenses. 2 or 3 percent of the purchase cost in maintenance expenses should also be part of the budget.

Since wind power is intermittent, some users may purchase turbines with a greater capacity than they can use at one time. Having twice or even three times as much maximum power for the same cost may be favorable to purchasing batteries. This setup requires a connection with the utility power grid for two reasons. The turbine owner will have the option of purchasing backup power when there is no wind. Some utilities also allow the turbine owner to sell power back to the utility. Not all utilities allow this and the turbine owner will have to purchase an inverter to use this method. Selling power back to the utility does generate income, so it should be considered when calculating the payback period.

Oregon’s Business Energy Tax Credit Program

Posted by on Saturday, 15 May, 2010

Oregon offers tax credits for many businesses that invest in renewable energy as well as reductions in their overall energy usage. Although this program is subject to cutbacks because of overall economic conditions, it still provides many benefits for businesses that reduce their energy usage and carbon emissions.

The program provides benefits in several areas, according to the State of Oregon. A major area is conservation, and the program allows tax credits for business owners who set up projects that conserve resources such as water and electricity through improvements to the air conditioning and irrigation systems at their companies. Qualification for this project does involve the business owner submitting an application to the State of Oregon and explaining why their project is eligible for tax benefits. The project has to be at least ten percent more energy efficient than the typical systems which other companies install.

The Oregon tax credit is a percentage of installment costs, not the full installment cost. At a thirty five percent rate, it does provide a significant reduction in construction costs, and does create an economic stimulus effect. Oregon requires a relatively short payback period, less than fifteen years. This is short because large improvements may be designed to last decades, and if a project lasts for fifty years, demand may be high enough that the cost will not allow payback in fifty years. Payback periods are affected by overall energy costs, so even if a new refrigerator or air conditioning system does not appear to have a payback period of less than fifteen years now, it might when gas prices sharply jump during a crisis in the future. You’ll still have to make the calculation with reasonable numbers now when sending in the tax credit application, to get the approval of the Oregon auditors.

This project is now scaled back, not just because of the economy, but because of widespread fraud. According to Oregon Live, the previous regulations allowed businesses to collect money from the state of Oregon without providing any energy saving benefits. The new compromise bill allows wind power generators to still receive tax credits for building new turbines and wind farms, and reduces abuses such as dividing up the wind farms to receive greater amounts of Oregon taxpayer money. A clawback provision allows Oregon to reclaim subsidies on projects that do not continually meet energy efficiency standards. The government agency, DSIRE, offers a very long list of the types of projects eligible for Oregon energy efficiency grants, including local grants such as cities and counties that subsidize solar, wind power, and other renewable energy.