[strommen]

The federal government provides a tax credit for 30% of project cost for solar and wind. Unfortunately, this tax credit is non-refundable, meaning it can only be used to reduce your tax liability.

This effectively means that in order to do large-scale renewable energy projects, you must have backing from a large, profitable company to take advantage of the tax credit. This is called tax equity investing, and it's a big money-maker for giants like Goldman Sachs, Berkshire Hathaway, Bank of America, Google, etc. ROI for tax equity investing is amazing, like 20% annual rates of return. But the entire structure shuts out small players, non-profits, and government entities.

The tax credit is phasing out over the next 7 years, and the hope is that solar will then be profitable enough to be developed without tax incentives. But until then, investment is limited by companies with large tax liabilities.

[philipkglass]

The investment tax credit for solar works as you describe. Wind instead has a production tax credit where the owners get a tax credit for each megawatt-hour produced over the first 10 years of the project's life. The tax credit has been adjusted upward with inflation over time and is currently at $24 per MWh. If you make the reasonably conservative assumption of 20 years' life for a wind project, that's more like $12 per MWh over the project lifetime. Both tax credits are, as you say, only good for reducing tax liability.

New nuclear power in the US, built between 2005 and 2021, gets a production tax credit similar to wind. But it's capped at a lower level -- only 8 years of tax credits at $18 per MWh instead of 10 years at $24, and there's a cap on the maximum amount of eligible capacity. (Though the US is not building enough new nuclear to hit the cap anyway.) These tax credit levels were set up in the Energy Policy Act of 2005; back then nuclear looked a lot more mature and less in need of incentives than solar or wind generation technologies.

I think that investment tax credits are a better system than production tax credits. After a decade we can tell that there's really no danger of investors building an underperforming solar facility just to scoop up tax credits up front. The problem with a production tax credit is that it can generate perverse pricing signals at times of high output and low demand. Both wind and PV generators have negligible marginal costs and will "naturally" bid close to zero prices in competitive markets when demand is low and their output is high. But production tax credits also enable wind generators to bid less than zero -- "hey buyer, we'll pay you $5 per MWh to take this surplus electricity off our hands, and we'll still make money via the production tax credit." That negative-priced new wind may well be undermining other clean sources, like older wind projects, nuclear plants, or hydroelectricity. Nuclear would still be in financial trouble in deregulated electricity markets in the US even without bouts of negative-priced electricity, because it has relatively high O&M costs even after the capital costs are paid for, but it'd be doing a bit better if not for the bizarre negative pricing that wind produces sometimes.

[strommen]

Thanks for correcting me. And agreed about production vs investment tax credits.

It's unfortunate that the first "victim" of renewable energy is going to be nuclear (another carbon-free energy source). The intermittent nature of solar and wind require other energy sources that can be ramped up late in the evening and early in the morning, and turned off at night. Nuclear plants take days to ramp up, so they can't meet this need.

[philipkglass]

I too am unhappy about clean energy fratricide between renewables and nuclear power. (Though I think that most of the financial pressure on nuclear in the US is actually from shale gas; renewable generation hasn't been able to grow as quickly in absolute terms even though its relative YoY growth has been impressive.) If electricity storage gets cheaper and more abundant, that should help nuclear power too. It means that nuclear generators, like renewables, would be able to charge storage at low-price, low-demand times and discharge/sell at times of high demand. That would tend to displace relatively inefficient marginal supply sources based on fossils, like open cycle gas turbines used as peakers, instead of driving infighting between nuclear power and newer low-emissions sources.