End of state tax credit expected to impact Iowa clean energy growth

Source: By Karen Uhlenhuth, Midwest Energy News • Posted: Tuesday, May 9, 2017

Municipalities, such as Ames, Iowa, are the primary beneficiaries of a lapsed state tax credit for renewable energy.

The race is on to finish about a dozen large renewable energy projects in Iowa after state lawmakers did not act on renewing a key tax credit.

The state’s production tax credit of 1.5 cents per kilowatt hour will not be available for any projects that go into operation after Dec. 31, 2017. The Iowa Legislature did not vote on renewing the credit during the session that ended in late April.

The impact will be twofold: projects now in process won’t get the credit if they aren’t operating by the end of the year, and there will be no state tax credit as of Jan. 1 for larger solar projects.

A state income tax credit remains for developers of small projects.

The production tax credit of 1.5 cents per kilowatt hour, while not pivotal to the financing of a solar array now under development in Ames, is still an important piece of the financing, according to the city utility’s energy services coordinator, Steve Wilson.

“We’ve been given a goal of making sure we’re up and running before the end of the year,” he said. “That tells me they feel they need that (production tax credit.)”

And more broadly, clean-energy advocate Nathaniel Baer said, “I think it definitely is making an impact.”

Municipal and rural electric utilities aiming to put up solar arrays account for the majority of the pending applications. A couple years ago, the legislature reserved 10 megawatts of the existing tax credits for solar initiatives by municipal and investor-owned utilities. Co-ops already were allowed to seek the tax credit. The 10 megawatts for solar projects were claimed in short order.

In addition to the utility solar projects, an ethanol plant is seeking the production tax credit for a combined heat and power facility, and another applicant aims to recycle methane.

The legislature’s failure to extend the termination date has added some urgency to their projects.

“There are a few that probably aren’t going to make that date,” said Steve Falck, who represents the Environmental Law & Policy Center before the Iowa Legislature.

The credit, which pays off annually for 10 years, was first approved in 2005. However, it wasn’t until the last few years that developers of solar projects began to tap into it, according to Nathaniel Baer, energy program director for the Iowa Environmental Council. He attributes the increased interest to the falling cost of solar and the generally increasing size of solar arrays, which maximizes the potential benefit from the production tax credit.

Luther College is benefiting from 10 years of tax credits for a 1.6 MW wind turbine that began spinning in 2011. Jim Martin-Schramm, currently serving as the director of the Luther College Study Centre in England, estimated the credit at about $55,000 annually, which the college has sold to a third party since the non-profit college can’t collect a tax credit directly. The proceeds from the credit have helped to pay maintenance and repairs on the turbine.

The college also is benefiting indirectly from a credit on an 822 kW solar project installed a few months ago. A local solar installer has been collecting the tax credit – because the college cannot – and was subsequently able to offer Luther “a fixed ten-year PPA rate that is almost equivalent to our current cost to purchase power from Alliant Energy,” Martin-Schramm wrote in an e-mail. “Unlike our payments to Alliant Energy, our payments to Oneota Solar are recycled in our local economy and not shipped to Wisconsin.

“It’s a shame the legislature did not extend the 476C tax credit,” he wrote. “It has been valuable to Luther.”

Another beneficiary of the production tax credit is the Farmers Electric Cooperative in Kalona, Iowa. A 950 kW array that began producing in November qualifies for the production tax credit, which likely will amount to about $18,000 per year, said the co-op’s manager Warren McKenna.

Over a decade, he said, “It’s a significant amount of money. It’s well over 10 percent of the project cost.”

Completing the application has been arduous, he noted, and has required the help of an attorney. And the Iowa Utilities Board recently informed applicants that they would have to pay a modest amount for the agency to process applications.

Even so, McKenna said, “It’s an extremely good deal. It just takes tenacity to get it.”

Tax credits in general did not fare well in the just-completed legislative session in Iowa, according to Falck. There’s a feeling in the legislature that tax credits – which have been issued for a wide range of initiatives – have gotten out of control. The legislature plans to evaluate the whole range of tax credits before making more targeted decisions.

Another energy tax credit – an income tax credit for developers of small solar arrays – remains intact. Given that the credit generally develops a waiting list every year, clean-energy advocates attempted to increase the annual $5 million pot for the credit during the latest session. However, they managed only to keep the current $5 million yearly allocation.

The language for the production tax credit remains intact, Falck said. Advocates are likely to seek an extension next year.