December 4th, 2017 at 5:55 AM

Federal Tax Credits Drive Foreign Wind Investment

Nearly $5 Billion in Tax Credits Go to Just Six Foreign Companies

Foreign companies own anywhere from 15 to more than 500,000 acres of land across the United States for wind turbine farms. Use the interactive map in this story to see just how much land belongs these foreign energy investors. (Midwest Center for Investigative Reporting)
Foreign companies own anywhere from 15 to more than 500,000 acres of land across the United States for wind turbine farms. Use the interactive map in this story to see just how much land belongs these foreign energy investors. (Midwest Center for Investigative Reporting)

Investment in U.S. wind energy production has increased tenfold over the past decade with the help of billions of dollars in federal tax help, with foreign companies making up much of the increase.

Indeed, six foreign-owned wind energy companies have received at least $4.8 billion in federal tax credits between 2000 and 2015, according to a 2015 report from Good Jobs First, a nonprofit group that tracks government spending.

Those companies include Iberdrola, a Spanish-owned wind energy company that, at $2.2 billion, has received more money from the U.S. government than any other company.

Between 2004 and 2014, the amount of U.S. farmland controlled by foreign investors and corporations doubled from 13.7 million acres to 27.3 million, according to an analysis of data from the U.S. Department of Agriculture.

More than a third of that increase, 4.5 million acres, was due to long-term leases of farmland for wind farms and solar farms.

The acreage is valued at $7.9 billion.

During the same period, the amount of megawatts of produced by installed wind farms grew from 6,723 megawatts to 65,880 megawatts.

Fueling the increase were bountiful U.S. tax credits.

Wind energy companies, including government-owned companies, such as EDP Renewables (owned by Portugal) and Electricite de France (owned by France), were able to take advantage of a tax credit offered after the economic downturn in 2008.

As part of the American Recovery and Reinvestment Act, wind energy companies could choose to convert the production tax credit (based on how much electricity they produce) into an investment tax credit (based on how much they invested, whether the technology worked or not). Through the act, the companies received cash grants up front in lieu of tax credits down the road.

These investments, called Section 1603 grants, were designed to help jumpstart the rural economy after a departure of investment in the industry.

Until the 2008 recession, companies with large tax bills, like financial institutions, would pay wind energy companies to partner on projects; that way the institutions could use the extremely large tax credits that many of the companies didn’t need.

After the financial crisis, these institutions no longer had large tax bills because of their business losses. Because they then did not need tax credits, the investments dried up and the federal government stepped in, said David Loomis, a professor at Illinois State University.

Loomis said that the European companies have had been able to gain so much of the U.S. market and capitalize on these tax credits because they have invested in wind turbines for decades and were better equipped to build utility-scale wind farms.

Despite being located outside the U.S., many of the wind energy companies have used “in-sourcing,” which means contracting with U.S. companies and building their own U.S. manufacturing facilities. They manufacture their wind turbines because of the costs and the physical difficulties in transporting large turbines long distances, said Peter Kelley, spokesman for the American Wind Energy Association.

Wind turbines north of Fithian, Illinois. (File photo: Darrell Hoemann | The Midwest Center for Investigative Reporting)

Illinois Touted as Property Tax Model for Wind Farms

Illinois’ taxing model for wind energy companies is touted as one of the best in the country, bringing in $30.4 million in property taxes in 2016, according to economic experts.

Barton DeLacy, a tax expert from Chicago, said that the Illinois system is a good model that is very close to the value he gives to wind farms and is much more consistent than in other states.

“Ironically, the one area where Illinois actually got their act together and legislated a solution was regarding the taxation of wind farms,” said DeLacy, who said that much of the rest of the country uses a “patchwork” system.

The change came in 2007, after the Illinois state legislature determined the state’s haphazard system of property tax assessments created inconsistent and confusing assessments for wind energy companies.

Up until then, wind farms were assessed on a county-by-county basis leading to a system where schools were not being able to predict how much revenue they would receive from the taxes and companies being uncertain on how much they would have to pay each year.

In 2007, the legislature decided instead to establish a consistent value of wind farms anywhere Illinois by assessing wind turbines at $360,000 per megawatt hour of generating capacity.

Thus, taxing bodies could still assess at local rates, yet companies wouldn’t have to worry about a change in value from location to location.

However, the wind farms had a steep depreciation schedule, reducing from the $360,000 assessment by 4 percentage points each year (96 percent in the second year, 92 in the third, 88 in the fourth and so on) until they reached a floor of 30 percent of the original assessed value. The value of the land the turbines are located on is still determined by local assessors.

This system has greatly benefited many school districts, said David Loomis, a professor at Illinois State University.

For example, the Ridgeview School District in Colfax, Illinois, a town of about 1,000 in Central Illinois, had a property tax base of about $61 million in 2006. But after the installation of a wind farm, the taxing base was $102 million in 2008.

Guy Gradert, the superintendent of the school district, said that the extra money allowed the rural district to survive the recession without being affected by the economic downturn. Despite the turbines’ steep depreciation schedule, the school was able to use the money for capital projects and to pay down debt, he said.

“It really saved this school district,” Gradert said.

Jon Kilgore, the superintendent of the Pontiac School District, another rural district in Central Illinois with many wind farms, said the extra revenue helped the district keep up with its capital investments, including infrastructure.

“Although circumstances vary widely from county to county and district to district, the overwhelming evidence supports the conclusion that wind farms benefit school districts financially,” Loomis said. “General State Aid will be reduced in most cases as a result of increased tax revenue, but the net revenue stream will be positive. In fact, in most cases the impact is a very large increase in revenue.”

— J.H./The Midwest Center for Investigative Reporting

How does a wind turbine work?

(Midwest Center for Investigative Reporting with Brad Austin | Flatland)

Federal Government Expected to Lose More Than $20 Billion on Wind Energy Credits

A complex system of federal and state tax credits has played a key role in the development of wind farms across the United States, with billions of dollars of support going to foreign and U.S. energy companies.

In fact, wind energy companies are the largest recipient of federal energy subsidies, making up 37 percent of subsidies in 2013, according to the U.S. Energy Information Administration.

From 2016 to 2020, the federal government is projected to lose $23.7 billion in tax revenue through the wind production tax credit, according to a 2017 report by the Congressional Joint Committee on Taxation.

Nonetheless, the incentives have been effective, adding an annual average of 1.4 gigawatt hours of energy, according to research from Stanford University, which reviewed two decades of federal tax credit data and the growth of wind energy. The research found that when the credit lapsed, so did construction of new turbines.

The credits have been significant because wind turbine companies generate revenue in three main ways:

  • Selling the electricity they generate;
  • Selling renewable energy credits to companies and governmental entities that have a renewable energy portfolio;
  • Giving tax credits — largely the federal production tax credit and in some cases, state tax credits, said David Loomis, a professor at Illinois State University.

Federal incentives make up about a third of each project’s cost, Loomis said.

While the federal production tax credit is currently in the process of being phased out over the next five years, researchers say it has produced numerous jobs and billions to the economy.

Kevin Steinberger, a policy analyst at the Natural Resources Defense Council, found that these credits added 22,000 jobs and $23 billion to the economy in 2017 alone.

“Federal policy has a really important role in driving renewable energy growth,” Steinberger said. “We’ve been seeing more and more state and local policy to create clean energy.”

Although federal and state tax incentives make a large difference in making wind energy profitable, the role that property taxes play in decision-making is less clear.

The wind industry touts the benefits of construction jobs and increased property tax values, but inconsistencies in how wind turbines are assessed for property taxes make the impact of wind turbines on local tax coffers difficult to determine.

Most states have a system that varies from assessor to assessor, making the tax burden unclear, particularly before the turbines are installed.

“Whenever you’re part of an industry that builds things, you run into all kinds of variations,” said Peter Kelley, spokesman for the American Wind Energy Association. “Yes, it’s a challenge to navigate all different rules that states and counties have all across America, in all kinds of areas, you’re citing one example of differing policies in regards to local tax payments, but there are many, many different policies that vary.”

School districts are the largest recipients of property taxes. More than 99 percent of wind turbines are in rural areas, where school districts have been stressed by the decline in rural America.

About 71 percent of wind turbines are located in low-income areas, while 46 percent of wind turbines are in counties with high child poverty.

“We’re keeping our end of the bargain in creating economic activity in areas that need economic activity. There are benefits that flow throughout the rural economy,” Kelley said. “Local schools, ambulances, medical clinics and roads departments are all benefitting from increased resources, so even people who aren’t hosting the turbines benefit.”

The systems that states use to attract wind farms vary significantly.

In the Midwest:

  • Iowa offers a $0.015 production tax credit, similar to the federal production tax credit, and a five-year property tax exemption for the added value.
  • Illinois, Indiana and Missouri offer no incentives.
  • In Nebraska, instead of property taxes, wind energy companies pay a capacity tax of $3,518 per megawatt of generating capacity annually.
  • Oklahoma offered a 5-year property tax exemption, but the state made up for it by paying school districts an amount equal to those missing taxes.
  • In Kansas, the state offered a lifetime property tax exemption. Other incentives helped spark a building boom that eventually made it one of only five states that generate more than 20 percent of their power from wind.
  • In Texas, the state legislature gave  property tax exemptions to renewable energy companies that brought industry to rural areas. That meant a loss of $5.8 billion in property taxes over the life of the exemptions, which is 10 years. The state has promised to cover those losses with payments to local school districts, according to the state comptroller’s most recent report. The Austin-American Statesman originally reported on this issue.

So far, Iowa and Oklahoma, which lead the way in subsidies, are also set to receive the most income from property taxes by 2020, according to a report commissioned by the American Wind Energy Association.

In 2020, Iowa is set to receive $120 million, while Oklahoma is set to receive $80 million in property taxes.

— J.H/The Midwest Center for Investigative Reporting

— This reporting project was a collaboration between Flatland and the Midwest Center for Investigative Reporting, an independent, nonprofit newsroom covering agribusiness and related issues. 

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