A one-year extension of a key tax credit for the wind industry made it into the fiscal cliff deal the U.S. Senate and House passed on Tuesday.
The tax credit, which has been a major driver for wind development across the U.S. over the past two decades, is worth 2.2 cents per kilowatt-hour of energy produced by new wind installations for their first 10 years of operation.
A White House news release confirmed that the production tax credit extension is included in the Senate package that the House also passed. According to industry insiders, it would allow any project that begins construction in 2013 to claim the credit, even if it goes online in 2014. The tax credit that expired on Monday could only be claimed for projects that went online in 2012.
“Just simply, 30 percent of the value of a project is derived from the tax credit,” said Florian Zerhusen, CEO of WKN USA, a San Diego-based wind developer who flipped the switch on two new 3-megawatt turbines in the San Gorgonio Pass on Dec. 21, just days before the credit expired on Monday.
“That’s what makes it so important, or you’re making too low a return,” he said.
The pending expiration of the credit had already wrecked havoc on wind development in the U.S. Turbine parts manufacturing plants across the country have laid off thousands of workers in recent months, and developers put new projects on hold, threatening another 37,000 jobs, according to the American Wind Energy Association.
“Everything comes to a screeching halt,” said Nancy Rader, executive director of the California Wind Energy Association. “We end up in a limbo in which no projects or repowers move forward while they wait to see if the credit is going to be extended.”
The loss of momentum will likely slow new projects in 2013, even with the credit extended, she said.
New wind capacity installed in California as of the third quarter in 2012 totaled 661 megawatts, versus the 921 megawatts installed for the whole year in 2011.
In the Coachella Valley, uncertainty over the credit has meant slow progress on new development as well as necessary upgrades, or repowering, of hundreds of aging turbines in the San Gorgonio Pass, still considered one of the best places for wind energy in the state.
The estimated 2,500 turbines in the pass, 1,080 on public land, pumped out about 800 gigawatt-hours of power in 2011. That electricity accounted for about 5 percent of Southern California Edison’s renewable power for the year.
One gigawatt-hour equals one million kilowatt-hours. The average home in California uses about 6,700 kilowatt-hours per year, according to figures from the U.S. Energy Information Administration.
Companies such as NextEra Energy and EDF Energy, both which own and maintain hundreds of aging turbines in the area, have no immediate plans for any repowering projects.
Besides the WKN turbines, as of the third quarter, the only other new wind project in the pass last year was a 49-megawatt installation owned by AES Corp.
More time needed
The question still facing developers is whether the one-year extension will be enough to recapture the industry’s lost momentum.
The American Wind Energy Association earlier this year proposed a six-year phase-out of the credit, an idea that has drawn mixed reviews from wind developers in view of ongoing tax breaks for other forms of energy.
“We’ve always said we won’t need (the production tax credit) forever,” said Ellen Carey, an association spokeswoman. “We need to have a glide-path to keep the success.”
Fritz Noble, vice president of real estate and development for Wintec Energy, one of the companies that pioneered wind development in the pass, thinks the industry ultimately cannot run on the production tax credit alone, but will be propelled by the state renewable energy standards, such as California’s 33 percent goal for 2020.
In the meantime, he predicts a lull in 2013.
“A one-year extension just prolongs the uncertainty,” he said.
Zerhusen agreed the uncertainty ahead may make project planning complicated.
At this point, he may continue with development of new projects, even if none are constructed this year, he said. He has no pending projects in the San Gorgonio Pass.
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