IN DEPTH: Wait begins over PTC

The US wind industry now must wait for Congress to reconvene later this month to see if lawmakers will renew the production tax credit (PTC) that expired at midnight on Tuesday.

President Barack Obama supports an extension as does most of his party, which has a majority in the Senate. Opposition Republicans, which control the House of Representatives, are divided over the issue.

Most wind farms and manufacturing plants that supply the industry are located in congressional districts held by Republicans.

The PTC is worth 2.3 cents per kWh, inflation-adjusted for a project’s first decade in operation. It is the main fiscal incentive that has underpinned impressive cumulative wind capacity growth in the past decade.  

Uncertainty over whether Congress will extend the subsidy at the end of each calendar year and sometimes in two-year intervals, has led to boom-and-bust cycles for the industry. Since the PTC was enacted in 1992 under President George HW Bush, a Republican, Congress has allowed it to lapse several times including at the end of 2012.

Developers rushed projects forward to completion in 2012 to qualify for the credit. While Congress last January did extend the PTC for another year with more favorable eligibility criteria, installations plummeted to an anemic 70MW in the first three quarters of 2013 versus 3.37GW in the same 2012 period.

The new PTC wording allows projects to qualify if at least 5% of the cost was incurred in 2013 and they are placed in service by 1 January 2016 (they can come online in 2016 but developers must also show “continuous construction.” Most are opting not to do this.)

That led developers to place orders with turbine and service suppliers in the fourth quarter last year. General Electric, Gamesa, Siemens and Vestas announced deals that will keep their factories busy into 2015.

Utilities last year inked long-term agreements to buy about 6GW of wind power and about 2.5GW was believed to be under construction in the fourth quarter.

Iowa Senator Charles Grassley, the ranking Republican on the Senate Finance committee who authored the original PTC bill, believes that Congress will likely renew the incentive and make it retroactive to 1 January.  This process could take months. There is less sense of urgency to extend it than in years past given the revised wording for 2013.  

“That language has people operating like it was a three-year extension,” says Matt DaPrato, senior analyst for IHS Emerging Energy Research.  

Grassley notes that the PTC is among dozens of tax credits that expired last year. Past practice has been for Congress to extend them together via an attachment to a large piece of legislation, which was to have been a possible comprehensive tax reform bill. Tax reform now appears less likely as President Barack Obama has named Senator Max Baucus of Montana, one of its main promoters and Finance Committee chairman, to be ambassador to China.

Senator Ron Wyden of Oregon, also a Democrat, will succeed Baucus. If tax reform is not possible this year, Wyden told The New York Times that, “I’m not going to support just letting renewables just fall off a cliff.” That means finding other legislation to act as a vehicle for tax credit extensions.

Meanwhile, wind opponents vow to ramp pressure on lawmakers in Congress to end the PTC, or at least agree to a timed phase-out. They are being joined by fiscal conservatives who argue that the cash-strapped federal government can’t afford to keep subsidizing the industry.

The Congressional Research Service, the research arm of Congress, last year estimated that the PTC will cost $9.7bn from 2013 to 2017 for all renewables.

 

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