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The Inflation Reduction Act versus the 1.5 cent/kWh and 30% investment tax credit proposal for wind power

Author

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  • Matthew Celsa

    (Johns Hopkins University)

  • George Xydis

    (Johns Hopkins University
    Aarhus University)

Abstract

The production tax credit (PTC) and the investment tax credit (ITC) have been the US federal government’s primary means of economically supporting a variety of renewable energy sources, including wind energy projects. The PTC is a tax credit for power producers that allows them to gain a tax rebate for each kilowatt-hour (kWh) of power that they produce. The ITC meanwhile enables power producers to receive a deduction on a certain percentage of their investment costs. Both tax credits are set to expire at the end of 2021, though the Inflation Reduction Act would extend both tax credits while altering their amounts and structure. While the Act has many positive provisions, the bill’s PTC value of 2.5 cents/kWh is too high in comparison to a 30% ITC, as wind power producers will usually be economically incentivized to choose the PTC over the ITC as investment costs fall and wind farm capacities increase. This composition will offer a proposal for a 1.5 cent/kWh PTC and an ITC worth 30% of the investment tax basis for power producers, effective between 2022 and 2026, with a refundability option making the investment environment more stable compared to the many bumpy rides in the US PTC and ITC history.

Suggested Citation

  • Matthew Celsa & George Xydis, 2023. "The Inflation Reduction Act versus the 1.5 cent/kWh and 30% investment tax credit proposal for wind power," SN Business & Economics, Springer, vol. 3(3), pages 1-14, March.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:3:d:10.1007_s43546-023-00448-x
    DOI: 10.1007/s43546-023-00448-x
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    References listed on IDEAS

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