The Wind May Keep Blowing, Just Not From Congress

Image by Chris Winters. Some rights reserved.

The American wind energy industry has long relied on a production tax credit (PTC) that returns 2.3 cents per kilowatt-hour produced as a tax credit to investors. Following the PTC’s expirations in 1999, 2001, and 2003, the industry’s installed capacity fell each time by three-quarters or more. In the past few months as the industry lobbied Congress to pass an extension to 2016 – the year the solar PTC expires – it has presented two arguments.

First, the industry has increasingly turned to domestic manufacturing for its components, sourcing 60% of its parts from American manufacturers in 2011 compared to 25% at the time the PTC was allowed to lapse at the turn of the century. Second, the industry is at such a scale that the cost of wind energy is decreasing, and a PTC effective through the 2013-2016 window would allow the industry to “finish the job,” in the words of American Wind Energy Association Denise Bode, quoted in a Greentechmedia article.

But Congress left the PTC, which had been tucked away in the payroll tax cut bill, out of the final version of the legislation. A standalone bill to extend the PTC is unlikely to pass, but some expect a lame-duck Congress to pass an extension after November’s elections. For now, it is a race for developers to get their turbines up and running before year’s end, when the tax credit ends.

The industry expects to see frantic building in anticipation of the deadline, but for construction to stall after the summer as uncertainty over the credit’s future intensifies. Business leaders say many projects that cannot be accelerated to completion in 2012 will have to be cancelled or delayed as land leases, interconnection agreements, and other permits expires. Inexpensive natural gas in addition to generally weak demand for electricity is prompting manufacturers to look to areas with strong government support for business, including Southeast Asia, Turkey, and much of Latin America.

This does not paint a rosy picture for the industry. Where can wind look for hope? To the states, for now, perhaps. On the same day that Congress appeared to leave the wind industry to its fate, Massachusetts governor Deval Patrick announced a major step forward for Cape Wind, which is aiming to be the first offshore wind project in the United States. Massachusetts utility NSTAR agreed to purchase 27.5% of the proposed project’s capacity. In December, New England utility National Grid, agreed to a power purchase agreement for 50% of Cape Wind’s capacity.

With the Massachusetts Supreme Judicial Court’s acceptance of the Department of Public Utilities’ approved price, the project can begin financing for its estimated $2.6 billion cost. The turbines will be five to thirteen miles off Cape Cod in Nantucket Sound, and construction will take 2.5 years. By then, who knows how the wind industry will look.

6 responses to this post.

  1. […] whose regulations affect the wind industry. Despite wind energy’s uncertain future (see our post on the production tax credit), regulators are at least looking to simplify the permitting process. […]

    Reply

  2. […] to extend the production tax credit that expires at the end of this year (see our post on the topic here). Increased visibility of climate change on the global agenda could propel the issue, causing major […]

    Reply

  3. […] Atlantic, seeing energy storage and generation companies faring well in 2011. The wind industry is still waiting for Congress to vote on extending its production tax credit, and as we covered here, if it is not […]

    Reply

  4. […] Following in its own footsteps, Massachusetts again made moves to advance the use of renewables such as wind and solar in the Bay State. Late last week ML Strategies (a consulting affiliate of law firm Mintz Levin) wrote in depth about Massachusetts Governor Patrick signing into law Senate Bill 2395, An Act relative to competitively priced electricity in the Commonwealth. The bill aims to “protect Massachusetts ratepayers while providing greater reliability and energy independence for all residents of the Commonwealth,” according to a press release from the Governor’s office, through the use of expanded incentives and opportunities for renewable energy companies. […]

    Reply

  5. […] energy programs have seen opposition recently, and the outcome of the pending battle of the wind energy production tax credit will be an early test of the Obama Administration’s policy. Either way, renewable energy growth […]

    Reply

  6. […] Now that has Congress extended the wind Production Tax Credit (after a long battle detailed here and here) and outgoing Interior Secretary Ken Salazar said he is optimistic that the Cape Wind […]

    Reply

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