PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States
The purpose of this report is to both quantitatively and qualitatively analyze, from the project developer/owner perspective, the choice between the PTC and the ITC (or equivalent cash grant) for a number of different renewable power technologies.1Because the two credits are structured differently, and apply in different ways to different technologies, the choice between the two lends itself to quantitative financial analysis of the conditions under which either the PTC or the ITC would, at least in theory, provide greater financial value. Qualitative considerations may be equally important, however, particularly in instances where quantitative differences are modest. This report proceeds as follows. Section 2 provides a brief summary of ARRA 2009, with some emphasis on those provisions designed to ease the liquidity crisis facing the renewable power sector. Section 3 describes the quantitative analysis methodology, as well as modeling results for wind, open-loop biomass, closed-loop biomass, geothermal, and landfill gas projects. Section 4 discusses a number of qualitative considerations that may play as important of a role as quantitative results in deciding between the PTC and the ITC (or equivalent cash grant). Section 5 concludes, and an Appendix provides supplemental tables that present quantitative analysis results conducted at different discount rates. We do not consider the one-year extension of bonus depreciation because we do not wish to limit our analysis to projects installed in 2009. The PTC/ITC choice is in place through 2012 for wind projects, and through 2013 for other technologies; bonus depreciation is available for only a fraction of this period. Furthermore, though it could help to motivate capacity additions in 2009, bonus depreciation will (as revealed by side analysis) have only a negligible impact on the choice between the PTC and the ITC (or cash grant).