If the US wind industry were a patient, any doctor would give it a clean bill of health… until the end of 2012. The prognosis for 2013 could be near-terminal as the Production Tax Credit is due to expire at the end of 2012.
“The goal of the tax credit: is the more we build the cheaper it will become. That has been borne out over time,” says Richard Caperton, a senior policy analyst with the energy opportunity team at Center for American Progress. “Wind is a very healthy industry that is viewed as a mainstream investment by utilities. It’s been very effective.”
The PTC has been the primary federal financial support mechanism for wind, which rewards developers and investors with 2.2 cents per kWh over 10 years. The main source of revenue for projects are PTCs, direct electricity sales and trading renewable energy market certificates (RECs).
This lifeblood of the wind sector has helped the US industry reach a robust level of 43,461 MW installed by the end of September, with more than 8,400 MW under construction.
The PTC has driven down the costs of wind energy to the point where it can compete with coal or gas-fired power plants, the American Wind Energy Association claims. State-of-the-art wind power plants can generate electricity for less than 5 cents/kWh with the PTC in many parts of the US, it says. AWEA also estimates that the PTC has attracted $60 billion of investment since 2005.
Analysts at IHS Emerging Energy Research say that the PTC’s presence since 2005 has supported wind energy growth averaging 5.6 GW a year, and the installation of 83% of nameplate wind capacity in the US.
“The industry is at a very interesting inflection point where technology and innovation are really helping to drive down the cost of wind substantially,” says Matt Kaplan, US wind analyst at IHS EER. “But the problem is that the industry still needs the PTC to sustain a sizeable level of build each year. Wind would have a very challenging time competing without the PTC that much is clear.”
Boom And Bust
Without the PTC installations could collapse from an annual peak of 10.5 GW in 2012 to as low as 1.5 GW in 2013, IHS EER forecasts.
“There are a lot of investments that have been made since we saw the last expiration of the PTC and the industry has really grown by leaps and bounds,” says Kaplan. “It’s unfortunate we’re back to where we were several years ago with a potential boom and bust in the tax credit. With that can come a very low and dark time for the industry.”
An estimated 75,000 US wind energy jobs at more than 400 factories in 42 states could be at risk, according to AWEA.
Additional domestic manufacturing capacity created partly by stimulus funding such as the 48C tax credit under the American Recovery and Reinvestment Act of 2009 would also be lost, says AWEA.
Developers are clearly on tenterhooks. Andy Wickless, associate director of energy at analysts Navigant, says: “We’ve talked to manufacturers and developers over the last few months and it’s all about certainty. When you don’t know what the numbers are going to be and you don’t know what the plug is in your spreadsheet that’s the worst thing that could happen. Folks need a decision now because they’re in a holding pattern in terms of their business plans and they don’t know where to place their chips.”
Patrick Woodson, the chief operating officer at E.ON Climate & Renewables North America, says that his company needs to know within the next few months whether the PTC will be extended so that it can adjust its business plan.
“We need to have a clear indication so we can properly plan to acquire equipment. We’re a global wind company. We have a number of on- and offshore European markets so we’re competing for capital internally. As a company we need to decide in the next few months where we’re going to put dollars in 2013. We really need some kind of signal or those dollars could very easily go elsewhere. Primarily that would be Europe, but that’s not to say that we couldn’t see some other markets emerge as well.”
US Remains A Power In Wind
“The PTC is certainly not the most generous subsidy that exists across the globe,” says Woodson. “But it is an important one in that it has offered the ability to make these projects economic. If that goes away we have to see a major change in the landscape either on the cost side or price of power side to keep doing these projects.”
E.ON Climate & Renewables North America began operating in 2007 in the US after it bought a subsidiary of Airtricity, an Irish green power generation company. It now has 1,920 MW installed at 13 wind farms across the United States, with a further two additional wind farms in late stage construction totaling 300 MW.
It’s no secret that the driver here is economic development
“We love being in the US because we had really just gotten started on developing the onshore resource. We have massive amounts of land still that can be developed for power production and really good wind resource, Woodson says. “But there is still a good deal of opportunity still in places like the UK. But as long as it remains a viable market economically we think there’s great potential in the US.”
However, a new lifeline has been thrown to the PTC and the wind industry that relies on it.
The bipartisan American Renewable Energy Production Tax Credit Extension Act introduced on 2 November by Republican Dave Reichert and Democrat Earl Blumenauer would extend the PTC for four years.
Bipartisan support comes from Midwestern states with good wind resources, large installed capacity or manufacturing bases such as Iowa, Kansas, Illinois, Oklahoma and Pennsylvania.
“It’s no secret that the driver here is economic development,” says Wickless.