Federal Financial Incentives for Geothermal Power Project Financing
Federal financial incentives, such as the Production Tax Credit, Investment Tax Credit, Treasury Cash Grant, Modified Accelerated Cost Recovery System, and U.S. Department of Energy Loan Guarantees, enhance the financial returns of geothermal power projects. Important elements of these geothermal projects incentives are included in the table below.
| Financial Incentive | Description | Timing of Payment | Tax Appetite Required (refers to ability of the project owner to make use of tax credits or deductions) | Relevant Dates |
|
|---|---|---|---|---|---|
| Choose one |
Production Tax Credit |
2.2 cents/kilowatt hour (2010$) produced for first 10 years | At end of each of the first 11 tax years | Yes | In service on or before December 31, 2013 to qualify |
| Investment Tax Credit |
30% of eligible tax basis | At end of first tax year after in-service date | Yes | In service before January 1, 2014 | |
| 10% of eligible tax basis | At end of first tax year after in-service date | Yes | In service before January 1, 2017 | ||
| Treasury Cash Grant (Section 1603 Program) |
30% of eligible tax basis of property | 60 days after completion of application (after in service) | No | Unless otherwise extended, under construction by December 31, 2011 to qualify and in service by January 1, 2014 | |
| 10% of eligible tax basis of property | 60 days after completion of application (after in service) | No | Unless otherwise extended, under construction by December 31, 2011 to qualify and in service by January 1, 2017 | ||
| Modified Accelerated Cost Recovery System |
Accelerated depreciation over 5-6 years instead of asset life | At end of each of the first 6 tax years | Yes | None | |
| U.S. Department of Energy Loan Guarantees |
Guarantee for up to 80% of project loan amount | Backstop provided at time of financing | No | Under construction by September 30, 2011 to qualify | |
*Information found in table based on a series of interviews conducted in the spring and summer of 2010 with geothermal industry developers, financiers, and other industry experts.
For any geothermal power project investment, investors must choose whether to pursue Production Tax Credit (PTC), Investment Tax Credit (ITC), or Treasury Cash Grant. In addition to one of these three incentives, developers can also utilize the Modified Accelerated Cost Recovery System. The PTC usually has a higher discounted cash value than the ITC or Treasury Cash Grant for geothermal projects, however, many project owners choose the Treasury Cash Grant over the PTC or ITC because they do not have enough taxable income to take advantage of the tax credits and must sell them at a discount to other investors, whereas they can use the Treasury Cash Grant immediately to pay off construction loans or term loans and reduce the amount of project debt.
Geothermal power plant developers may also seek a U.S Department of Energy (DOE) Loan Guarantee. Designed to help lower the cost of borrowing during the construction and operation stage, DOE Loan Guarantees include a fully guaranteed experimental technology program and a partially guaranteed conventional technology program. Developers may face some challenges in meeting the necessary conditions for these programs and taking advantage of the tax-based incentives at the same time, including timing the initial ground-breaking after the necessary federal environmental review under the National Environmental Policy Act.
For more information on financial incentives, see NREL's Geothermal Policymakers' Guidebook to Electricity Generation.
Geothermal power projects may also qualify for state-sponsored financial incentives. For a list and description of incentives available by state see the Database of State Incentives for Renewables and Efficiency.
