Is the reduced PTC still relevant to the wind industry?

IN DEPTH | With a four-year construction window for projects already qualified under the full PTC, does the smaller tax credit still matter? asks Karl-Erik Stromsta

The US wind production tax credit (PTC) may have started its terminal decline on 1 January — dropping to 80% of its former value, on its way towards nothing in 2020 — but industry experts say it still has some kick in it.

“I think there are a fair number of people looking at the 80%,” Chris Brown, chief executive of Vestas Americas, said on Thursday at the Wind Power Finance & Investment Summit in California.

One of the biggest questions following the late-2015 extension of the PTC was this: How much would the PTC phase-out count for, if anything?

The wind industry was able to marshal bipartisan congressional support for the five-year PTC extension in large part because it came with a phase-out. But would developers actually embrace the diminishing subsidy levels in the spirit in which the phase-out was designed — qualifying projects this year for 80% of the PTC, in 2018 for 60%, and in 2019 for 40%?

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Or would they simply rush to qualify projects for the full PTC in 2016, and then slowly build them out over the allowed four-year construction window — all the while quietly hoping that wind has become competitive on a subsidy-free basis by the time next decade rolls around?

Many signs in recent months have pointed toward the latter scenario. Most major developers have confirmed making huge “safe-harbour” orders in 2016 that will allow them to build dozens of gigawatts of fully PTC-eligible projects during the 2017-20 period.

The full PTC is worth an inflation-adjusted $23/MWh for 10 years, and has been the bedrock of the US wind market’s growth over the past decade.

Yet as a sense of calm once again descends upon the US wind sector, following the manic 2016 presidential election and late-year procurement frenzy, it’s starting to look like the diminished PTC may not prove a damp squib after all — at least not at the 80% level.

“I think the 80% PTC is still pretty significant,” Tristan Grimbert, chief executive of EDF Renewable Energy (EDF-RE), tells Recharge.

Last year, San Diego-based EDF-RE, one of North America’s largest renewables operators, bought more than 300MW of turbines from Vestas, GE and Siemens that will allow it to build about 3GW of fully PTC-eligible wind farms over the next few years.

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Grimbert did not reveal whether EDF plans to qualify projects at lower PTC levels, and says it’s “a little early to tell” what sort of appetite the broader industry will have.

“There’s some unknowns there,” he acknowledges. “It depends a lot on where the price of gas goes.

“But when you look at the [levelised cost] of wind energy today, and the technical roadmap the industry is on, we think the ramp-down of the PTC will allow wind to remain competitive."

Vikaas Rao-Aourpally, vice-president of sales and business development at Goldwind Americas, agrees. “Despite the abundance of safe-harbour agreements we saw signed [in 2016], there are still plenty of opportunities and projects out there that are currently uncommitted,” he says.

On Wednesday, Gabriel Alonso, chief executive of EDP Renewables North America, told the conference that the industry's most important objective under the Trump administration is not protecting the PTC phase-out, but to preserve the four-year window developers have to build out projects qualified for the full PTC.

The possibility that the 40% PTC for wind projects that enter construction in 2019 might be scrapped as part of a US tax-reform package is “not something that keeps me up at night”, he said.

“I don’t know how many people are relying on [the later PTC years]. We are not.”

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