Small wind energy systems are popping up in backyards across the nation thanks to an uncapped federal energy tax credit that covers 30% of the cost.
The science behind a residential system is simple: A turbine that’s wired to your home’s electrical grid collects kinetic energy from the wind and converts it into electricity. As wind speed picks up, turbine output increases, reducing the amount of power you’ll need to draw from your local electric utility. A turbine is defined as “small” when it has the capacity to produce 100 kilowatts or less of power.
But just because you install a wind turbine doesn’t guarantee you’ll generate enough electricity for the system to pay for itself. The quality of the wind — that is how hard, how steady, and how unobstructed it blows across your property — and the number of turbines ultimately determine how much electricity you’ll be producing.
Tax credit can ease financial blow
In an effort to encourage home owners to embrace wind energy, the IRS is offering a generous tax credit. Buy a small turbine (or several) and you’ll get a 30% tax credit for the total cost of the equipment and installation. Come tax time you’ll have to file IRS Form 5695. Save your receipts and certification statements, often available on packaging or manufacturers’ websites, since Uncle Sam could ask for them.
The tax break can be applied to a small wind energy system installed by the end of 2016 at your primary residence, vacation home, or rental property. Take the credit in the tax year the system becomes operational. The credit can’t exceed the total amount you owe in federal taxes for that year.
Any surplus can be carried forward to a succeeding tax year in which the credit applies, currently through 2016, according to Ron Stimmel, manager of small systems at the American Wind Energy Association. Consult your tax adviser about your specific circumstances.
The U.S. Department of Energy and the AWEA estimate that a wind turbine costs between $3,000 and $5,000 per kilowatt of capacity. Figure you’ll need from 5 kilowatts to 15 kilowatts of capacity to make a significant dent in the power demands of a typical home. If you split the cost difference on a per-kilowatt basis, that means a 10-kilowatt small wind energy system will run about $40,000 ($4,000 times 10 kilowatts).
After factoring in the 30% federal tax credit, the price tag falls to $28,000. Additional incentives are often available at the state level. And your utility may pay you for any excess electricity you generate.
Small wind systems aren’t for everyone
Free electricity and a check from the power company each month may sound too good to be true, and in some cases it is. For those living in urban areas, wind turbines won’t make much sense because thick stands of trees and tall buildings reduce the quality of the wind. An average annual wind speed of 12 miles per hour is needed to generate electricity. Living in a state that has below-average electricity rates also makes the investment less attractive.
In general, a wind turbine makes sense if your monthly electricity bill is $150 or more, according to the DOE. The average U.S. household pays about $108 a month.
The most effective wind turbines need to sit on towers in your backyard at heights ranging from 30 to more than 100 feet. The higher the tower, the better output your wind turbine will usually get. Rooftop models, while available, don’t offer optimal exposure to wind currents.
If you don’t have at least an acre of land, chances are you won’t get the permits needed to install a wind turbine. Typical local setback ordinances require you to put a wind turbine 30 feet from neighboring properties. Getting a permit for a smaller lot will probably require special permission. Start with the local government agency that regulates planning and zoning.
Taking the wind-turbine plunge
If you do have enough land, good wind quality, and expensive electricity rates, then investing in a wind turbine will pay for itself — eventually. Manufacturers claim payback can come in as little as four years if you live in an area with optimal conditions. Getting credits or cash from your utility for excess electricity will quicken the pace of your return on investment, but you’ll have to make sure there’s a net metering program in place.
A 10-kilowatt system could lower electric bills by at least 50%. That’s $650 a year in savings for the average U.S. household.
Before you take the leap, determine the quality of your wind. There are several ways:
- Record wind speeds with an anemometer.
- Check with local airports.
- Hire an independent company to do an assessment.
Do compare prices on wind systems, but don’t necessarily go with the cheapest option. Since you’ll need parts and service, think about sticking with companies that have been around for a while. Figure it’ll take at least three months to get a wind turbine up and running.
Ultimately, the decision to install a wind turbine can come down to doing right by the environment as much as doing right by your wallet. According to the AWEA, a single residential-scale wind turbine displaces the carbon dioxide produced by 1.5 cars. You can reduce your home’s carbon footprint further by installing energy-efficient windows, appliances, and light bulbs.
This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.