With the help of a couple of important federal
financial incentives, it can make sense to ...
By Russ Ramsey
In the last five years, the use of wind energy has enjoyed
a powerful resurgence in the United States. And the
proliferation of machines that employ moving air to
generate electricity can largely be attributed to two
pieces of federal legislation, both of which resulted from
the recognition of our nation's energy predicament back in
the 1970's. These two important incentives can actually
turn a wind system that costs as much as $3,000 per
kilowatt of capacity into a wise financial investment.
YOU, THE FRIENDLY LOCAL
In 1978 Congress passed the Public Utility Regulatory
Policies Act (PURPA), which contains a provision, Section
210, that—among other things—specifies that
utilities must buy power from (and sell power to)
independent producers of electricity who utilize renewable
sources of energy. Under PURPA, an owner of a wind machine
is guaranteed a connection with his or her local utility.
The wind systems of a couple of generations ago had battery
banks to store their excess production. These plants were
designed to be electrically independent, simply because
there was no centralized source of power in the form of a
utility grid. Admittedly, windplants of the 20's and early
30's were far better than the alternatives: motor
generators or no electricity at all. But when the wind
stopped blowing for extended periods, their battery banks
did eventually go flat. And, until the wind came up again,
the residents either had to fire up a backup generator or
go without electricity.
Today the utility grid can offer a windmachine owner an
essentially unlimited source of backup power. And the
utility's interconnection charge—which the system
owner must bear—is far less than the cost of buying
and maintaining a battery bank.
Hooking into the grid provides another important benefit,
in the form of a constant customer for excess electrical
production. Since a wind machine's capacity will sometimes
be greater than the amount of power that's needed (in the
middle of a windy night, for example), it's very convenient
to have someone around to purchase the excess.
PURPA requires utilities to buy electricity from qualifying
independent producers at rates based on what is called
avoided cost. This figure is determined by what it would
cost the utility to produce that electricity. Because
there's a tremendous variation in the actual avoided costs
of different power companies, and because there are a
number of different ways to go about calculating them,
buy-back rates vary from about 1¢ per kilowatt-hour
(kwh) in some midwestern states to as much as 10¢ per
kwh in California and parts of the Northeast.
However, regardless of your location, you'll never get rich
by selling power from your home-size wind machine to a
utility. Because the power company pays less than retail
for power it buys, your best bet is to use as much of your
home-generated electricity as possible. Unfortunately, some
utilities require that all generated power be sold directly
to them (at buy-back rates, of course) and that all power
consumed at the site be purchased from the utility at
retail rates. This provision—which is often called
parallel (as opposed to series) interconnection—can
make tying into the utility's grid a financial bust!
Because of a variety of federal and state tax incentives,
it's possible to write of as much as 90% of the initial
cost of a wind-powered electric system. One of the
decisions you'll have to make, however, is whether you'll
consider your windplant to be a home appliance or a piece
of business equipment.
Domestic applications: The federal
residential renewable-energy tax credit allows an
individual to deduct up to 40% of the first $10,000 spent
on a wind machine. This will result in a direct reduction
in the amount of tax paid in the year that the equipment is
In addition, 19 states offer similar direct tax credits,
and a total of 37 states have some sort of direct or
indirect incentive. The indirect incentives may be in the
form of tax deduc tions (from gross income), exemption from
sales and/or property tax, and/or a combination of rebates
or refunds to the purchaser.
Finally, an individual may deduct the interest paid on a
loan used to buy a windplant, as well as any sales tax that
may have been added to the purchase price.
Business applications: There's a federal
15% renewable-energy tax credit for businesses that install
wind machines to serve their enterprises' electrical needs.
In addition, if enough of the power produced from a
residential system goes to the utility grid, the owner may
be considered to be in the business of producing
electricity. This can be ticklish for small systems
connected in series, but all parallel connected systems
should qualify as power-producing businesses.
The federal government also provides a 10% investment tax
credit. This can trim yet another 10% off the taxes paid by
a business. And the Internal Revenue Service allows wind
systems to be depreciated over a five-year period (under
Accelerated Cost Recovery), which means that a percentage
of the machine's cost can be deducted from business income
each year over a five-year period.
THE ENERGY FUTURE
Researchers think that the cost of electricity will
continue to rise at a rate of 15 to 30% annually, once the
current leveling in cost has passed. They also suggest that
another major energy crisis can be expected in the 1990's.
Thus, the development of wind energy, wherever it's
practical, is vital to both our personal and national
At present, the tax and utility interconnection incentives
are crucial to the feasibility of wind-energy systems.
Unfortunately, the renewable-energy tax credit is due to
expire in 1985. And, as of this writing, a renewal bill has
failed to make its way through Congress. If you'd like to
develop your own wind system in the next few years, you may
want to contact your representatives and senators and urge
them to support a continuation of these incentives.
EDITOR'S NOTE: Readers who are interested in developing
wind systems for far less than the going commercial rate
may want to build their own small DC plants by using plans
developed by Marshall Price. These machines can produce DC
power to be used independently from the utility; or, with
the proper synchronous inverter, the electricity can be
tempered and sold to the power company. The plans are
available for $15—plus $1.00 shipping and
handling—from Mother's Plans, P.0. Box A, East Flat
Rock, NC 28726.