PTC, ITC or Cash Grant: What Should Developers Choose?

The report, PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States takes an in depth look at the American Recovery and Reinvestment Act, which was signed into law last month. The bill contains a number of provisions that could have a significant impact on how U.S. renewable power projects are financed over the next few years.

Among these provisions is one that allows projects eligible to receive the production tax credit (PTC) to instead elect the investment tax credit (ITC). Another provision enables ITC-eligible projects (which now include most PTC-eligible renewable power projects) to instead receive a cash grant of equivalent value. Both of these provisions are in place for a limited time only.

The reports authors analyzed a number of technologies including wind, open- and closed-loop biomass, geothermal and landfill gas projects. Quantitative analysis of these five technologies reveals that only two clearly favor one credit over the other: open-loop biomass receives more value from the ITC in every combination of installed cost and capacity factor modeled, while geothermal mostly receives more value from the PTC.

The quantitative and qualitative factors addressed in this report suggest that most wind, open- and closed-loop biomass, and landfill gas projects may benefit more from the ITC than they will from the PTC. Furthermore, the reports authors said that based on qualitative considerations alone, it is reasonable to expect those projects that are placed in service or begin construction in 2009 or 2010 to elect the equivalent cash grant rather than the ITC itself. Geothermal projects, on the other hand, are likely to prefer the PTC, unless qualitative considerations overwhelm quantitative.

Click here to download the report.