Government Policy Support - International
- 03:04
Government Policy Support internationally for renewable energy.
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Glossary
Project finance Renewable EnergyTranscript
In other countries. The US government, for example, has what's called production tax credits. These work to reduce the amount of taxable income depending on how much power you have generated from renewable resources. There's also an investment tax credit. It's one or the other. You make a choice which one is more profitable for you. The investment tax credit allows you to deduct an extra initial percentage of your upfront CapEx. If you use domestically produced US sourced materials, or your energy generation is located in a particular disadvantaged area, then the percentages increased still further. What's interesting from a financial point of view is that this US federal government support allowances can be transferred to other people. If you have a renewable energy company that's not making enough taxable profit to be able to use all of their allowances, they can sell those allowances to other people, typically to their shareholders who may have enough taxable income that they could use those credits. It's what's known as tax equity financing. Generous allowances that a company can't take advantage of are transferred to private taxpayers, and they can use those allowances instead. It's fairly common within the US, but it's rare in Europe. In Germany, there has been a feed in tariff with households, for example, that have solar or wind projects on their rooftops, can actually feed electricity into the national grid and obtain revenue for doing so. The entire scheme was funded by a levy on consumers electricity bills. It was effectively extra revenue if you had renewable energy generation. The German government ran auctions for capacity volumes where bidders would seek subsidies at the point of building their renewable energy plant. The subsidies are gradually reducing because of market forces. It's getting cheaper and more efficient to build wind power or solar power, and therefore the need for a subsidy is substantially reduced compared say to 10 years ago. In Germany, there is also a partial tax exemption for small scale operators on whatever electricity that they have generated themselves and consumed themselves what we call cannibalization. If you look at other countries, Spain has tax incentives for renewable energy in the sense that they have a more favorable tax regime and pay less tax than similar companies generating power from non-renewable resources. In France, state-owned Electricity de France has a contract for difference arrangement very similar to that of the UK. In Australia, small scale renewable producers can trade certificates with non-renewable sourced energy producers similar to the Roc scheme that used to exist in the UK.