Congress extended wind energy’s vital production tax credit (PTC) for one year as part of the midnight deal resolving some of the tax issues dubbed “the fiscal cliff.”
More importantly, the bill’s tax extenders package granted the $0.022 per kilowatt-hour tax credit to the electricity wind projects generate over the first ten years of their production service to wind farms “under construction” by the end of 2013.
This is an historic change from language in previous PTCs, which have been available to the wind industry since 1992 and renewed eight times, that required projects to be “in production” by the end of the incentive’s specified term.
The language change will be crucial because wind developers, in the absence of certainty the tax credit would be extended for 2013, did not place orders for the massive turbine machinery after the middle of 2012, and it will take at least six to nine months for manufacturers to take orders and gear up to meet them again.
The rush to get projects “in production” by the end of 2012 has caused a level of wind installation in Q4 expected to result in a record 12-plus gigawatt installed capacity for the year. It was a level of activity that built 44 percent of all new U.S. electricity generating capacity for the year, more than the natural gas industry’s 30 percent and much more than that of the coal or nuclear industry’s small contribution to new capacity.
Industry watchers were forecasting a drop-off of as much as 75 percent in 2013 and a loss of almost half the industry’s 75,000-person workforce because of uncertainty surrounding the PTC’s extension.
The new language, introduced in August legislation passed out of the Senate Finance Committee that only got to the Senate floor with the current fiscal cliff action, could save some of the year for the wind industry.
Manufacturing and development lead times of eighteen to twenty-four months would make it almost impossible to get projects in production by the end of 2013, but getting some started by December 31 is not beyond reach.
Competition for limited inventories and manufacturing capacity could, however, threaten wind’s latest cost-cutting advances.
“I am terribly disappointed that political brinkmanship caused such a long delay in this renewal process, as it truly has a negative impact on the U.S. wind energy supply chain. A number of great companies have exited the market due to policy uncertainty, and those that have stayed in the game are going to need to ramp up operations very quickly,” explained MAKE Consulting Partner Dan Shreve.
Extension of the PTC was stalled throughout 2012 by election-year politics. Conservatives supported Republican presidential candidate Mitt Romney’s opposition to the extension, while a bipartisan force supported President Obama’s advocacy for it.
“On behalf of all the people working in wind energy manufacturing facilities, their families, and all the communities that benefit, we thank President Obama and all the Members of the House and Senate who had the foresight to extend this successful policy, so wind projects can continue to be developed in 2013 and 2014,” said retiring American Wind Energy Association CEO Denise Bode, who led the fight for the PTC extension and the new language.
The U.S. geothermal industry also gets the PTC and will benefit from the new language. “Congress’ action will spur significant new employment,” noted Geothermal Energy Association CEO Karl Gawell. “Consumers and utilities will benefit, as well, because developers will have greater certainty about whether the credit will be available for their project.”