Wind Power’s Growth Blown Away by Tax Uncertainty

BANNING, CA - DECEMBER 8: Emissions-producing diesel trucks and cars pass non-polluting windmills along the 10 freeway on December 8, 2009 near Banning, California. Sustained global warming shows no sign of letting up according to new analysis by the World Meteorological Organization made public at the climate talks in Copenhagen. Although global temperature fluctuates from year to year, overall the decade of the 2000s is likely the warmest decade in the past 150 years covered by the report. This decade is warmer than the 1990s which were warmer than the 1980s, and so on. The conclusion meshes with independent analysis by the National Climatic Data Center and NASA. (Photo by David McNew/Getty Images)
National Journal
Clare Foran
Dec. 9, 2013, 12:49 p.m.

Un­cer­tainty over ex­pir­a­tion of the wind pro­duc­tion tax cred­it has dealt a dev­ast­at­ing blow to the wind in­dustry’s for­ward march.

The num­bers tell the story of boom and bust. In 2012, the in­dustry had its best year to date, in­stalling more than 13,000 mega­watts of wind-gen­er­at­ing ca­pa­city na­tion­wide. Util­it­ies shied away from sign­ing new power pur­chase agree­ments in the second half of the year, however, be­cause of un­cer­tainty over wheth­er they could com­plete con­struc­tion be­fore the tax cred­it’s sun­set. As a res­ult, only 1.6 mega­watts of wind-gen­er­at­ing ca­pa­city were in­stalled in the first half of 2013.

“It used to be that your pro­ject had to be on­line and provid­ing elec­tri­city to the grid be­fore the cred­it ex­pired, which was a very hard and fast dead­line,” Alex Klein, re­search dir­ect­or for clean and re­new­able-power gen­er­a­tion at IHS Cera, told Na­tion­al Journ­al Daily. “So by the time the cred­it was ex­ten­ded as part of the fisc­al-cliff deal, the dam­age was already done to the in­dustry.”

Things are a bit dif­fer­ent this time around.

When Con­gress ex­ten­ded the cred­it at the be­gin­ning of 2013, it altered the terms. Now, con­struc­tion doesn’t have to be fin­ished be­fore the cred­it ex­pires for a pro­ject to be eli­gible for the sub­sidy — it just has to be un­der­way.

This means that while un­cer­tainty over the cred­it dis­cour­aged de­velopers and util­it­ies from sign­ing new PPAs in the second half of 2012, this year it may ac­tu­ally be fuel­ing a push to square away con­tracts and break ground on pro­jects be­fore the cred­it ex­pires Jan. 1.

“There cer­tainly is an in­cent­ive right now for util­it­ies to pro­cure wind en­ergy now while there is some surety that the cred­it will be in place,” Klein said.

Ac­cord­ing to the Amer­ic­an Wind En­ergy As­so­ci­ation, the num­ber of PPAs signed this year has in­creased over last year. But it’s dif­fi­cult to say how much the cred­it or oth­er factors are re­spons­ible.

“You have the de­clin­ing cost of wind com­bined with the avail­ab­il­ity of the pro­duc­tion tax cred­it, and these two things taken to­geth­er make it so that wind is a really great deal right now,” said Liz Salerno, AWEA’s dir­ect­or of in­dustry and data ana­lys­is.

But while con­tract sign­ing hasn’t slowed head­ing in­to ex­pir­a­tion of the cred­it the way it did last year, the in­dustry won’t be in­su­lated from dam­age forever if the sub­sidy is al­lowed to lapse.

“If the PTC is not ex­ten­ded this year, that’s a con­cern be­cause we need to have it ex­ten­ded as soon as pos­sible,” the wind as­so­ci­ation’s CEO, Tom Kiernan, said in an in­ter­view last month. “We’re not go­ing to fall off the cliff as rap­idly as we did this year, but if the cred­it isn’t ex­ten­ded it will still have a sim­il­ar ef­fect — it’s just that the curve [rep­res­ent­ing the con­struc­tion drop-off] will be smoothed out.”

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