Investment in US wind power is expected to fall sharply this year in spite of the one-year extension of the production tax credit agreed by Congress as part of the fiscal cliff deal – but the drop is likely to be less than if the credit had been allowed to expire.
The uncertainty over the wind PTC, which was scheduled to lapse on December 31, has already caused a sharp slowdown in new projects and orders for equipment.
The industry is hopeful that orders will now pick up again. Liz Salerno of the American Wind Energy Association said many jobs had already been lost, but “with clarity in place, the development activity will be reactivated and projects can move toward starting construction”.
An important change is that wind farms that have started construction by the end of the year will now be eligible for the credit. The previous deadline was for them to begin supplying power to the grid. That will give new developments more time to sign contracts and secure permits.
However, any revival in investment this year is highly unlikely to take construction back to anywhere near last year’s levels, when a record of about 12,000 megawatts of wind generation capacity was installed in the US.
Analysts also warned that the continued uncertainty over the long-term future of the credit would deter investment and innovation.
An extension of the wind PTC, and credits for some other forms of renewable energy such as geothermal power, had been sought by President Barack Obama and members of both Democratic and Republican parties in Congress but was opposed by many Republicans.
Congress’s joint committee on taxation estimated that the extension would cost $12.2bn in lost revenue between 2013-22.
The wind credit is worth $22 per megawatt hour generated, typically saving 20-30 per cent from the cost of a project, which many in the industry say makes the difference between success and failure.
The collapse in the price of natural gas in the US has put pressure on the viability of all other methods of power generation.
More than half of US states have policies to encourage the use of renewable energy, but they were not expected to be enough to prevent a fall of up to 90 per cent in new wind investment if the tax credit had expired.
Matt Kaplan of IHS, the research company, said installation of wind capacity could have dropped to just 2,000MW in the US this year without the PTC.
Following the extension, that could rise to about 5,000-6,000MW a year into the next decade, he said, but the level would depend on how much certainty the industry was given over its tax position.
“The extension is a very important piece of legislation,” he said. “The big question, though, is what comes next. Is the PTC extended again and again, or does it lapse? The uncertainty makes investment more difficult.”
Mark Muro of the Brookings Institution, the think-tank, said the PTC deal, like the agreement over the fiscal cliff more generally, showed Congress opting for a short-term fix rather than long-term reform. “What would have been helpful would have been to have a three- or four-year down-ramp, with a date set for expiration,” he said. “That would have created certainty and incentivised innovation and price competition.”
Shares in Vestas, the Danish wind turbine group that was the second-largest supplier to the US market in 2011, rose 7 per cent on Wednesday.
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