When the Congress decided to extend the Production Tax Credit for wind energy projects, they made a couple of changes to the law that provide a substantial temptation for unscrupulous developers to take the money and run.
While many sources describe the PTC as a $22 per megawatt-hour (indexed for inflation) tax credit provided to wind power operators for the first ten years that the system produces power, that is not the way it always works. The American Recovery and Reinvestment Act of 2009 included a provision in section 1603 for developers of qualified facilities (which did not include nuclear, by the way) to obtain a 30% of project cost tax credit payable within just months of being accepted as qualified.
These section 1603 grants have been far more commonly used than the traditional Production Tax Credit since 2009. The original justification for this nearly immediate grant in lieu of payments for actual electricity production spread over 10 years was that the “tax credit market” had evaporated during the Global Financial Crisis. Many of the previous investors in that market had no taxable income to report so they no longer had any need to purchase credits from wind developers. However, projects had to be placed in service before the 1603 grants were paid out.
With the extension to the PTC included in H.R. 8, the American Taxpayer Relief Act of 2012, Congress changed the eligibility for the grant from facilities that are placed in service before the deadline date to facilities the “construction of which begins before January 1, 2014″. It also extended the wildly popular (for obvious reasons) section 1603 grant program.
Unless I am misreading the current law, a developer could “begin construction” (a term that is not carefully defined in the law) and then apply for the grant to be awarded. Once the developer has received the payment of 30% of projected cost – which could be several hundred million dollars for a large project – it seems possible that the development could be halted with no planned recourse for the taxpayers to recover their money.
Even in the case where project developers are not frauds and really do complete their projects, the extension of section 1603 in the American Taxpayer Relief Act of 2012 means that the $12 billion that has been calculated as the cost of the act will not be dolled out over 10 years. Instead, it will be paid out almost immediately. After all, businessmen know that there is a time value of money, it is far more valuable if paid right away than if spread out over ten years.
I would love to have someone explain why my concerns are unfounded.
PS – I probably should not have limited my concerns to wind developers; Section 1603 applies to several other kinds of qualified facilities, including algae based biofuels produced by such financially strapped entities as ExxonMobil.