The US wind power industry has lived and died by production tax credits over the years, and with the prospect of expiration finally looming at the end of this year, industry players are working hard to build a future without it.
US installations are set to fall off a cliff in 2013 with Navigant Consulting estimating additional incremental capacity between 1 and 4 GW, down dramatically from >9 GW in 2012.
At the same time, China has become a major force in the global wind industry, but its share of the global market declined in 2011 by 7%, while the US increased its market share as developers rushed to complete projects ahead of PTC expiration, Lisa Frantzis, Managing Director Renewable Energy & Distributed Energy at Navigant Consulting told the audience at the recent Renewable Energy Finance Forum Wall Street summit.
Wind power’s competiveness with conventional fossil fuels erodes considerably without the PTC, going from about $.06/kWh to $.08/kWh, said Frantzis.
There is much “consternation” among frustrated developers that has paralyzed the sector, said Kevin Walsh, Managing Director, Power & Renewable Energy at GE Energy Financial Services. Given this situation domestically, GE EFS is investing outside the US in places with greater regulatory certainty like Canada, Australia and Europe, Walsh told Breaking Energy on the sidelines of the conference.
But it’s not all doom and gloom. The winners in a post PTC world will be “developers with portfolios of higher wind resource sites with access to transmission in liquid markets,” said Tim Rosenzweig, CEO of Goldwind USA, a major turbine original equipment manufacturer (OEM) based in China.
Manufacturers able to most effectively solve the cost/performance equation could be among the post PTC winners, Rosenzweig said.
The operational advantages lost without the government incentive will need to be made up in other areas such as project capital expenditure, project operating expenditure and wind resource and turbine performance said Rosenzweig’s slide presentation.
The US will still be an attractive business environment without the PTC because it will remain an available, sophisticated market that could interest foreign players. “It will be a proving ground,” said Rosenzweig. Additionally, post consolidation, remaining players will be ready to enjoy a larger share of a “normal” market.
Read more about PTC expiration in the Breaking Energy white paper “Wind Rush,” here.
Some other positive outcomes of a declining PTC include greater regulatory certainty, increased ability to plan long term, the elimination of federal politics, a differentiation of the wind industry and the establishment of a year-to-year incentive, said Paul Gaynor, CEO of First Wind.
The economics will be more difficult, said Gaynor, and turbine prices will need to come down, materials will need to improve and turbine lifetimes will need to lengthen to help balance the lost operational benefits afforded by the PTC.
And while developers “love their tax equity investors, they are expensive,” said Gaynor. Tax equity investment is a financing mechanism that takes advantage of the PTC.
One reason it is difficult for the industry to get away from the incentive is that wind power was essentially a “garage band technology in 1992″ and investment tax credits originated from that nascent business climate, it’s hard to rip that system up and start from scratch now, Gaynor said.
Although he is confident that companies will be able to “make it work” without the tax credit, it won’t be easy -”it’s like heroine, hard to get off,” said Gaynor.