An Economic Valuation of a Geothermal Production Tax Credit

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An Economic Valuation of a Geothermal Production Tax Credit ( an-economic-valuation-geothermal-production-tax-credit )

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1.0 Introduction The Energy Policy Act of 1992 (EPAct) (P.L. 102-486) created a 10-year, inflation-adjusted 1.5 cent per kilowatt-hour (kWh) production tax credit (PTC) for electricity produced from wind and closed-loop biomass resources. The Section 45 PTC provides project owners with a credit against taxes for the first 10 years of plant operation. In late 1999, after a brief lapse, the PTC was retroactively extended through December 2001. In 2001, several bills were introduced in the U.S. Senate and House of Representatives which, if passed into law, would set the value of the credit to 1.8 cents/kWh and expand it to include solar, incremental hydropower, and geothermal electric sources. By providing targeted tax incentives, the U.S. government hopes to increase the supply of energy from socially beneficial energy resources. The purpose of this report is to examine the project-level financial impacts of the proposed 10-year 1.8 cent/kWh PTC on geothermal power plants. Within this report, the PTC is compared to the existing Section 48 10% Investment Tax Credit (ITC). The numerical results presented in this report were developed using Geothermal Cost-of-Eelectricity (GEOCOE), a cost of electricity model developed by the National Renewable Energy Laboratory (NREL). GEOCOE simulates a detailed 30-year nominal dollar cash flow for geothermal power projects including project earnings, cash flows, and debt payment to calculate a project's 15-year levelized cost-of-electricity (LCOE), 15-year after-tax nominal Internal Rate of Return (IRR), and annual Debt-Service-Coverage-Ratios (DSCR). 1

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