On December 18, 2015, President Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029), which includes multi-year extensions for federal tax incentives for wind and solar generation facilities and lifts the 40-year-old ban on crude oil exports from the United States. The $1.1 trillion spending bill, which funds the government through September 2016, passed the U.S. House of Representatives by a 316-113 vote and the Senate by a 65-33 vote. Among the obvious winners from the bill are the solar and wind industries, which will receive long-needed regulatory certainty, as well as crude oil producers in the U.S., currently seeking for export outlets to alleviate the domestic oil supply glut. Domestic refiners could see their margins shrink, however, as the price differential between West Texas Intermediate (WTI) and Brent is expected to shrink.
With the elimination of crude oil export restrictions, the United States, which is currently the world’s largest oil and gas producer, can export crude the same way it currently exports other refined products, including gasoline. However, taking into account potentially negative effects on employment, the new law also authorizes the President to impose licensing requirements or other restrictions on crude oil exports for national security reasons or if such exports are found to cause sustained material oil supply shortage or sustained oil price increase above world market levels. Lifting the crude oil export ban will provide U.S. producers with unlimited access to the global market at a time of low prices and new competition from Iranian oil. While the repeal is unlikely to immediately boost exports due to current low prices, it will provide flexibility for producers to develop contracts and explore options.
The bill extends the production tax credit (PTC) for wind and certain other renewable sources of electricity including geothermal and biomass. The PTC for wind energy will remain in place through 2016, followed by incremental reductions for 2017, 2018, and 2019 before expiring in January 2020. The investment tax credit (ITC) for solar will continue at 30 percent levels for commercial and residential systems for the next three years, and then decrease incrementally each year to settle at 10 percent in 2022.
The renewable energy tax credit extensions will reduce costs and eliminate regulatory uncertainty associated with wind and solar technologies, thereby boosting installations. The multi-year predictability will also help continue advancements in the wind industry, ending the repeated boom-bust cycles over the previous two decades stemming from uncertain tax policies. However, grid operators will have a critical role in resolving issues of intermittency when integrating the expanded solar and wind generation.
Originally published by EnerKnol.
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