Tax Incentives for Geothermal Electricity Generation
States often use tax incentives, including property and sales tax incentives, and tax credits to provide an incremental motivation for geothermal development. A tax incentive is designed to reduce the taxes owed by individuals and businesses that use or produce geothermal power. Incentives are usually structured as production-based credits or investment credits. Because tax incentives are often based on a percentage of total costs or the market value of equipment, they can serve both small and large geothermal power projects.
Property Tax Incentives
Eleven states offer property tax incentives for geothermal power facilities as part of a broader renewable energy property tax incentive. Three of these states—Oregon, South Dakota, and New Jersey—restrict eligibility to facilities designed for on-site electricity use rather than for electricity resale.
States structure property tax incentives in a variety of ways in an effort to promote renewable energy development while preserving the local benefits of property tax revenue generated by local power plants. A key consideration for property tax incentive structures for geothermal electricity facilities is to recognize the long development timeline, high capital, and pre-operational costs relative to conventional power plants and other renewable energy facilities. Examples of several state property tax incentives are listed below.
| State | Property Tax Incentive |
|---|---|
| Arizona | The value of renewable energy equipment is 20% of the depreciated cost of the equipment for tax valuation purposes. |
| Colorado | Facilities are assessed as though their installed costs were comparable to those of non-renewable energy facilities; the incremental value of the renewable energy facility above a conventional facility is disregarded. |
| Idaho | Certain geothermal energy producers are exempt from paying taxes on real estate, fixtures, or property related to their renewable energy systems; these facilities pay a 3% tax of their gross energy earnings, linking earnings to property tax rather than capital costs, and distributing a portion of the collected tax amount to the facility’s local county. |
| North Dakota | Facilities are exempt from property taxes for 5 years after operations begin. |
| South Dakota | A portion of the taxes paid by renewable energy facilities is available as a rebate for the construction of transmission lines; receipts from capacity tax and 20% of the gross receipts tax are redistributed back to the county treasurer of the county (or counties) where the facility is located. This currently applies to wind farms in the state, but could be applicable to geothermal power plants. |
Additionally, five states—Colorado, Idaho, Utah, Washington, and Wyoming—exempt geothermal electric generating equipment from state sales tax. Nevada offers a partial sales tax exemption.
Tax Credits
Currently, eight states provide tax credits for geothermal power generation projects. When these policies were created they included geothermal electricity projects as part of a broader renewable energy tax credit program. Tax credit levels, maximum allowable credit, treatment of credit amounts that exceed the taxpayer's tax liability, and other provisions vary widely by state, as summarized in the table below.
| State | Tax Credit Amount | Maximum Amount | Carryover of Excess Credit | Other Provisions |
|---|---|---|---|---|
| Florida | $0.01/kWh for electricity produced from January 1, 2007 through June 30, 2010 | Not specified | 5 years | Maximum of $5 million per state fiscal year for all credits. Electricity must be sold to an unrelated party. |
| Maryland | $0.0085/kWh for 5 years | $2.5 million | 10 years | The sum of all credits statewide may not exceed $25 million. Electricity must be sold to an unrelated party. |
| Montana | 35% | Not specified | 7 years | Eligible costs include installing or upgrading transmission lines. |
| New Mexico | 6% | $60 million | 10 years | Facilities must be at least 1 MW capacity. |
| North Dakota | 15%; credit distributed 3% annually for 5 years | Not specified | 5 years | All or part of credit may be sold or transferred to power purchaser or North Dakota taxpayer that constructs or expands transmission lines. |
| Oklahoma | $0.0025/kWh - $0.0075/kWh for 10 years; Amount varies depending on facility start date and year electricity is generated | Not specified | 10 years | Facility must have a rated production capacity of 1 MW or greater. Tax credit is transferable. |
| Oregon | 50%; credit is distributed 10% annually for 5 years | $10 million | 8 years | Electricity may be sold or used on site. Project must replace at least 10% of electricity, gas, or oil used. |
| Utah | Facilities ≥660 kW: $0.0035/kWh for 4 years; Other systems: 10% of project cost | Facilities ≥660 kW: no limit; Other systems: $50,000. | May not be carried forward or back | Electricity may be sold or used on site. Tax credit is refundable. |
Learn more about other policy options to consider.
