Under current law, qualified renewable electricity projects that start construction before January 1, 2014, are eligible to receive PTCs during the first 10 years of project operations. For projects started on or after January 1, 2014, the PTC would not be available. The debate about the future of PTC incentives generally falls within a spectrum of options. At one end of the spectrum, proposals have been made to eliminate the incentive. At the other end of the spectrum, proposals include making the PTC permanent. Various other proposals, such as extending and phasing out the PTC over time, fall within these two extremes. This report analyses several alternatives for phasing out PTC incentives. As the deadline for PTC availability approaches, Congress may consider a variety of options regarding the future of PTC incentives. This report examines various alternatives for phasing out production tax credits (PTC) for qualified renewable electricity generation. The phase-out option would require congressional action to extend the availability of the incentive for the duration of the phase-out period. While the concepts discussed in this report are universal to all PTC-eligible projects, examples and analysis included in the report are generally focused on wind power projects. A single technology was selected for the focus of the analysis in order to limit the scope of the report, since different technologies have different project and performance characteristics that would require in-depth financial analysis for each specific technology type. Wind power was selected for the analysis in this report because the wind sector has been the largest recipient of PTCs to date, and since much of the debate about the future of PTC incentives has centered on how the incentive impacts the wind power industry. In response to congressional interest in PTC incentives for renewable electricity generation, this report provides an overview of different policy options, focusing on four different phase-out concepts that exist in current law, have been proposed, or have been discussed. Additionally, an alternative PTC phase-out approach that might be based on competitive, cost, and other market variables that can change over time is also examined. In addition to elimination or permanent extension of the PTC, four different phase-out approaches are examined in this report: (1) phase-out under current law, (2) straight line phase-out over five years, (3) American Wind Energy Association (AWEA) phase-out concept, and (4) a market-linked phase-out policy option. The Appendix contains analysis of a market-linked phase-out policy option that considers multiple energy and financial market variables that can affect the economic competitiveness of wind power projects. Information in the Appendix includes the examination of an illustrative market-linked phase-out policy option and how such an approach could be used as a means to gradually reduce and eliminate PTC incentives over a period of time. Policy design options, preliminary analysis, and limitations of the illustrative market-linked phase-out policy approach are also discussed. Quantitative comparison and analysis results of the straight line, AWEA, and market-linked policy options are discussed in detail within the body of this report. Figure 1 summarizes this analysis and illustrates how the PTC might phase out over time under each policy approach. All policy options are further described in the body of this report. Several PTC phase-out alternatives for renewable electricity are available. Each alternative is unique in terms of complexity, certainty, and other aspects. It is beyond the scope of this report to holistically examine all phase-out alternatives. However, Table 1 compares each of the four phase-out alternatives discussed in this report. The U.S. tax code is frequently used as a vehicle to incentivize development, production, and use of multiple energy sources. Different energy sources are incentivized in different ways (i.e., expense allowance, accelerated depreciation, and tax credits) and over different periods of time. As a result, comparing and contrasting treatment and equity across all energy sources is complicated. Doing such a comparison is beyond the scope of this report. Nevertheless, policy makers may be interested in understanding the history and background of U.S. energy tax incentives. This report is focused on production tax credits that are available for renewable electricity generation and potential options for eliminating, extending, or phasing out this financial incentive over a period of time. Further, the scope of the discussion is about wind power generation because wind electricity has been the primary recipient of PTCs since the incentive was made available in 1992. At the end of 2012, approximately 60,007 Megawatts (MW) of wind power capacity had been installed in the United States and Puerto Rico. In terms of cumulative installed wind power capacity, the U.S. wind market is the second largest of any country in the world (China's is number one). Federal incentives for wind electricity generation projects that use large turbines—greater than 100 kilowatts (kW)—are generally in the form of production tax credits (PTC) and accelerated depreciation. PTC incentives provide a tax credit for each kilowatt-hour of electricity generated by a wind project during its first 10 years of operation. The current value of the PTC incentive for wind projects, which is inflation-adjusted annually, is 2.3 cents ($0.023) per kilowatt-hour. Originally established in the Energy Policy Act of 1992 ( P.L. 102-486 ), the PTC, along with several other market and policy factors, has played a critical role in the evolution and growth of the U.S. wind industry. Historically, PTC incentives for wind power projects have expired, and have been subsequently extended, multiple times since the incentive became available in 1992. Generally, annual wind project installations increase as the incentive expiration date approaches and then experience a decline after the expiration date. Wind project development typically ramps back up following an extension of PTC incentive availability. In fact, 2012 was a record year for wind power installations, with over 13,000 MW of new capacity added during the calendar year. The large amount of wind power capacity coming online is generally attributed to project developers accelerating development plans in anticipation of PTC expiration on January 1, 2013. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ), which became law on January 2, 2013, extended the availability of PTCs by allowing wind projects that start construction before January 1, 2014, to be eligible for PTC incentives. However, due to a variety of factors (i.e., development timelines for new projects, over-subscribed state renewable policies, low electricity demand growth, and low natural gas prices), 2013 wind project installations are expected to be significantly less than installations in 2012. Policy makers may be interested in how deployment of wind power might be affected in the absence of PTC incentives. However, it is unclear what level of wind development would occur if the PTC were permanently eliminated. For example, the Energy Information Administration forecasts that annual wind capacity installations, on average, will be approximately 215 Megawatts (MW) between 2016 and 2030 under a scenario where the PTC expires on January 1, 2014. However, Bloomberg New Energy Finance (BNEF) forecasts annual capacity additions in the 4,000MW to 8000MW range without PTC incentives. During the 2012 debate about the future of wind PTC incentives, the concept of phasing out the PTC for wind over a period of time was discussed by both congressional and industry stakeholders. In the 113 th Congress, two bills— H.R. 2081 and H.R. 2987 —have been proposed that would phase out the PTC over time. Rationale for phasing out the PTC over time is generally based on the argument that the wind industry would have the opportunity to adapt to a gradual reduction of this federal financial incentive as opposed to adapting to a sudden and drastic elimination of the PTC based on a defined expiration date. Under current law, the PTC incentive is available to wind projects that start construction by the end of 2013. As the 2013 expiration of the PTC incentive approaches, Congress may choose to debate the future of wind PTC incentives and may also consider PTC phase-out policy options. This report is designed to inform debate about various policy options for the PTC that have been proposed. Various policy options for the future of the PTC have been discussed, including elimination, permanent extension, and extension with a phase-out of the incentive. Several phase-out approaches have been discussed, each with the goal of gradually eliminating the wind PTC over a period of time. In fact, current law includes a provision to phase out the PTC incentive based on certain criteria (discussed in more detail below), although it is unclear if the current law phase-out would ever be triggered. The following sections briefly describe different policy options, including four different PTC phase-out concepts. Phasing out the PTC would require, to some degree, an extension of PTC availability for the duration of the phase-out period because a partial PTC would be available each year. Absent congressional action, new large wind power projects that start construction on or after January 1, 2014, will not be eligible for PTC incentives. However, new wind capacity additions in 2014 and 2015 are forecasted to be in the 6,000 MW to 8,000 MW per year range as the pipeline of new projects that met construction start requirements in 2013 are placed in service. Without a PTC incentive, the development pipeline for new projects will likely decline, compared to 2013. In the future, the ability of wind power to compete economically in a post-PTC environment is unclear and will depend on market factors such as the price of natural gas, project location, finance costs, equipment and installation costs, and wind turbine technology performance. Proponents of PTC expiration argue that the tax credit has been available since 1992 and has supported the wind industry to a point where the technology should compete without the support of federal financial incentives.