Iowa to End Some Renewable-Energy Tax Credits

Published July 27, 2017

Some renewable-energy tax credits in Iowa will lapse at the end of 2017 after the state’s legislature ended its 2017 session in April without renewing Iowa’s 10-year production tax credit of 1.5 cents per kilowatt hour for non-wind renewable energy.

The non-wind tax credits at issue are for large and mid-size generating capacity of up to 63 megawatts statewide, 10 megawatts of which were specifically set aside for municipal, rural, or investor-owned solar facilities. A state income tax credit remains for small, rooftop solar electricity projects, capped at $5 million per year statewide.

Under the new law, solar projects must be operating by December 31, 2017, to receive the state tax credit, although federal incentives will remain in effect. The new law puts pressure on more than a dozen mid-size to large renewable projects currently in various states of development to begin operating before the end-of-year deadline.

Luther College, located in Decorah, Iowa, claimed the 10-year tax credit when it finished installing an 822 kilowatt (kW) solar project in early 2017. Farmers Electric Cooperative in Kalona, Iowa installed 950 kW arrays, which qualified for the tax credit, and began generating electricity from them in November 2016. According to Midwest Energy News, the co-op expects the tax credit for its array to amount to approximately $18,000 per year for 10 years.

Little Energy Produced

According to the U.S. Energy Information Administration, solar has not made much of a dent in Iowa’s electricity portfolio, despite federal and state incentive programs. Wind power generated one-third of the state’s electricity in 2016, a larger share than in any other state.

Although coal went from providing 76 percent of the state’s electric power in 2008 to 47 percent in 2016, it is still Iowa’s largest single source of electric power. Solar energy contributes less than 1 percent of Iowa’s electric power.

Budget Decision

Iowa state Rep. Ralph Watts (R-Adel) says the decision to let the renewable tax credit lapse was more about plugging holes in the state’s budget than anything else.

“The change in some of Iowa’s renewable-energy tax credits was brought about by the necessity to remove any optional expenditures from the state budget, more than any conscious change in policy with regard to renewable-energy subsidies,” Watts said. “It was necessary to dig deeply into every type of expenditure in order to make our budget balance.

“While I urged the cancellation of all renewable-energy subsidies, we didn’t quite get there, and as a result, there are still a few left,” said Watts.

Don Racheter, president of the Public Interest Institute, agrees ending the tax credits was necessary to balance Iowa’s budget.

“We have so many tax credits in the State of Iowa; we pay out about $107 million per year, so if we don’t end many of these, we cannot get our budget in balance,” Racheter said.

High Cost to Consumers

Timothy Benson, a policy analyst with The Heartland Institute, which publishes Environment & Climate News, says the high cost of solar power is passed down to ratepayers.

“The solar power being pushed by these tax credits is three times as expensive as conventional power, meaning Iowa ratepayers are facing higher electricity prices because of them,” Benson said. “The more people pay for electricity, the less they have to spend on other goods and services or put into savings.

“For lower-income Iowans, who spend a higher proportion of their income on energy costs, these tax credits are especially harmful,” said Benson.

Benson says tax credits, although more palatable than outright subsidies, still unfairly tilt the playing field toward favored industries.

“While tax credits are better than subsidies, because they let companies use more of their own money instead of using taxpayers’ money directly, state governments really should keep their hands off the scale when it comes to energy,” Benson said. “Unhindered and unsubsidized competition should be the norm, with government not encouraging any energy source—be it coal, natural gas, nuclear, oil, solar, or wind—over any of the others.

“Politicians should not be picking winners and losers,” said Benson. “If the renewable industry, or any industry, cannot compete in Iowa without the help of subsidies and tax credits, it should be allowed to wither and die.”

‘Corporate Welfare’

Racheter says Iowa legislators should stop using subsidies and tax credits to direct peoples’ behavior.

“Tax credits are government trying to shape behavior when, in fact, government doesn’t often know what best suits peoples’ needs,” said Racheter. “We support the free market and people making choices without government influence or interference.

“This renewable tax credit has provided colleges, utilities, and electric co-ops with government support to put solar panels on their roofs,” Racheter said. “This corporate welfare was unjustified, has produced little energy, and it’s long past time to end all renewable-energy tax credits.”

Robert Bradley Jr., CEO of the Institute for Energy Research, says Iowa’s tax credit piled a costly state program on top of a bad federal one.

“Iowa’s double dip with the federal tax credit of 2.2 cents per kilowatt hour (kWh) equates to 3.7 cents kWh, or one-third of the average U.S. electricity price,” said Bradley. “Can you imagine what people would think if gasoline received a similar tax credit, equaling about 90 cents per $2.50 gallon of gasoline?

“It is time for renewables to pay their own way in a new public policy era,” Bradley said.

Kathy Hoekstra ([email protected]) writes from Saginaw, Michigan.