For the past five years, the Production Tax Credit (PTC) has helped usher in an era of intense growth from the wind-rich fields of the Midwest to the emerging manufacturing hubs in the Southeast.
The industry thrived on relative stability confident that today’s deal would be backed by tomorrow’s policy. The American industry will soon pass a milestone of 50 gigawatts (GW) of cumulative capacity. And this year promises to be the biggest on record.
But there is a tangible shift occurring across North America and the pending expiration of the PTC looms over companies large and small. The generation-based tax credit is set to expire at the end of the year, and though the PTC appears to have plenty of anecdotal support on Capitol Hill, it has so far failed to garner the political resolve needed to ensure its extension.
That has caused plenty of jitters across the American industry, from developers reluctant to take on a project to manufacturers who are seeing their orders drying up. There are plenty of indications that a policy solution could be found but with that come other questions: Will the credit be extended for one year only?; If so, what comes after that?; and is the continued reliance on tax credits really the best long-term solution?
A recent New York Times editorial made the case that real estate investment trusts and master limited partnerships could open up new avenues for wind investment by allowing projects to tap into capital that hasn’t been there before. But the industry has coalesced around the push for a PTC extension, though differences remain in how long that extension should be.
American Wind Energy Association CEO Denise Bode indicated the organization is pushing for a one-year extension, with the hopes that a longer-term solution can be found the following year.
“We’re willing to talk in the future about all sorts of alternatives,” said Bode. “But we need to stop the bleeding now.”
A short-term deal may not be the ideal solution from a stability standpoint, but it may be all the political capital the wind industry can muster up in an election year in which the government’s role in energy investment has become a central issue.
During a recent trip to Newton, Iowa, President Obama visited TPI Composites, a growing wind manufacturer that stepped in to fill the void that occured when Maytag left town. Speaking in front of giant wind blades, Obama urged an increasingly divided Congress to find common ground on a job-creating issue by passing a PTC extension before the August recess.
In a time where all politics appears to be theater, presumptive GOP nominee Mitt Romney recently set up his podium with the backdrop of Solyndra, the failed solar manufacturing company that received more than half a billion dollars in a federal loan guarantee. The company’s bankruptcy has stood as a black eye for the Obama administration’s clean energy policy, and the wind industry and advanced biofuels have certainly, if unfairly, carried some of that burden.
Now, many in the industry believe it’s unlikely the Republican-led House will support the wind industry with an August PTC extension. If anything, a deal would more likely come in the short window following the November election. Doing so then may salvage parts of 2014, but it won’t do much to dent the bleak projections for 2013. Most wind projects take 18 to 24 months, so such a late extension wouldn’t immediately translate into new orders.
But it may help convince some major international players to remain in the North American market, rather than moving on to newer, and greener markets. So far, some of the biggest wind companies, including Vestas, have said that failure to extend the PTC will force them to cut jobs to accommodate a smaller market with more limited prospects. Kansas Gov. Sam Brownback, a Republican, said that his state relies heavily on the international investment that has stepped in to tap the state’s wind resource and its solid manufacturing base. On Monday, he said that as of two months ago Siemens, which built a plant in Kansas, had yet to take an order for 2013. During a press conference in Atlanta on Monday, GE also confirmed they have yet to take an American order.
An extension could do more than keep American jobs – it could bring new companies onto American shores for both onshore and offshore markets. Sources with knowledge of the Danish wind market say that several of the nation’s developers and manufacturers are eagerly watching how the policy unfolds. With a stable policy, they will likely enter the U.S. market, but the policy would have to be longer than a one-year extension, they say.
Bruce Bailey, CEO of AWS Truepower, agrees that a longer policy is needed, and the lack of stability – as well as new markets opening up overseas – has pushed the company to diversify. Bailey said his company saw the risks inherent in the American wind policy, and it decided to move into the solar industry as well as branch out to international markets like India and Latin America.
For AWS, America remains a vital yet for now unreliable market for at least the next year. And that’s because of the PTC, which is set to expire at an unfortunate time. In the past few years, when the PTC deadline loomed, it caused just a small ripple in orders and project development.
“This time it’s different because of the economic crisis that began in 2008,” said Bailey. “There’s difficulty is getting access to equity. There’s difficulty in getting power purchase agreements, and there’s a broken policy-making process in Congress. The confidence of the wind industry is at an all-time low for a policy that will support clean energy. If and when it’s renewed, it’s going to have to be for several years for the industry to grow again. A one-year extension isn’t going to have positive impact – maybe six months of activity in 2013. I wouldn’t expect a positive impact on our business until there’s an extension past one year.”
Brownback agrees that one year does little to create the type of economic environment that attracts investment confidence. Instead, he said a four-year policy that slowly gets phased out would give the industry the stability it needs to move forward. It would also, he said, address the continued budget pressures that will continue to face the federal government for the next five years.
In all, wind energy experts agree that the PTC is worth extending even in the face of the need to cut spending. “We have to get the economy growing and this is one way that works,” he said. “The public wants to buy renewable energy, they just don’t want it to cost more.”
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