Wind Power Getting the PTC Extension It Didn’t Want

on December 17, 2014 at 11:47 AM

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First Wind CEO Paul Gaynor once likened federal tax credits to “heroin” for the wind power industry. And you know what happens when a junkie doesn’t get his fix.

With the $1.1 trillion “Cromnibus” passed and sent on to the president, and the House home for the holidays, the Senate was left with “tax extenders” legislation that included reinstatement of the expired Production Tax Credit – but only until the end of this year. The Senate passed the bill Tuesday night by a 76-16 vote.

Does that spell disaster for the wind industry? Not immediately. Bruce Hamilton, who watches wind for Navigant, said dozens of projects begun in 2013 should continue to sustain construction activity in 2015, with up to 6 gigawatts expected to come online. But as far as refilling the pipeline, the American Wind Energy Association said earlier this month that a short-term fix would be “essentially worthless in driving new projects” because “there’s simply not enough time for any substantial number of new projects to physically begin construction before the end of the year.”

The Joint Committee on Taxation estimated the provision would cost $6.4 billion as the government provides a 10-year tax credit of 2.3 cents for every kilowatt-hour of electricity produced at projects that begin construction this year. AWEA has called the JCT figure “many times too high” and hopes the new Congress can deliver what this outgoing one couldn’t.

“We’re still letting legislators know that the U.S. wind energy industry needs an extension of the PTC and ITC (Investment Tax Credit) at least through 2015 so that American workers can make more of our own energy right here at home,” David Ward, AWEA’s deputy director for strategic communications, said in an emailed statement.

Immediately after the midterm elections, AWEA had argued that the new Congress wouldn’t necessarily be unfriendly to wind. The group noted that Republican senators-to-be such as Cory Gardner of Colorado and Joni Ernst of Iowa had pledged support for wind. Plus, AWEA’s Rob Gramlich wrote, “Some say it is now an imperative for Congressional Republicans to be productive and work on bills that can pass into law. We are optimistic that this is true.”

Hints as to what kind of extension might be possible in the new Congress were evident in ultimately failed budget negotiations between Republicans and Democrats in late November. One deal reportedly under discussion would have kept the PTC in place in full force through next year, then ratcheted down the value to 80 percent in 2016 and 60 percent in 2017 before ending it entirely.

A graduated drawdown is an idea AWEA floated before – back in December 2012, most notably, when it was going through yet another extension battle. That time around the industry ended up getting a PTC extension for just a year, but it was made more lucrative by allowing projects to qualify simply by being “under construction” instead of in operation before the January 1, 2014 deadline.

If a phase-out deal is available, the industry might be smart to take it, Navigant’s Hamilton said. Hamilton said that the policy certainty would level out the rollercoaster that wind has long been on, as developers anticipate and react to PTC expirations and renewals.

Plus, while Hamilton said wind installations are likely to fall to around 3 GW in 2016 without the PTC, he then sees a ramp-up, to around 5 GW by 2020, driven by state renewable portfolio standards. Installations would then decline in the early 2020s as RPS impacts wane, until rising natural gas prices again made wind a favorable economic choice.

All that could change, however – and in a good way for wind – if states institute or boost renewable portfolio standards to require more clean energy from utilities. That could happen if the Obama administration’s Clean Power Plan, which would limit emissions from existing power plants, goes through.

Hamilton’s Navigant colleague Lisa Frantzis said wind’s strong economics would mean it would “surface high in the queue” as utilities look to replace the “many gigawatts of coal that is likely to be coming offline” under the Clean Power Plan.

While Republicans are making noise about killing or at least defanging the plan, AWEA has been pushing in the opposite direction. At a public hearing in July, the group testified that the details of the draft rule “significantly underestimate the amount of cost-effective reductions that are available now and in the immediate future from renewable energy sources” and said the “final rule can and should require emissions reductions that go further than proposed in the draft rule, particularly in light of the lengthy compliance period.”