Two months after Congress rescued it, the wind industry’s crucial tax credit is back on the countdown to extinction.
The fiscal cliff deal revived the wind-production tax credit on New Year’s Day just hours after it legally expired. Industry leaders say the extension saved thousands of jobs and will support the installation of thousands of megawatts of power this year.
But the credit is due to expire again Dec. 31, and opponents are just as eager as before to see it die. The industry wants a long-term extension, but that has near zero odds with the Capitol consumed with talk of budget pain.
Still, an industry can dream. Here’s a look at what wind wants – and how likely it is to get it.
PLAN A: A long-term extension
The industry is looking for long-term certainty rather than the will-they-or-won’t-they prospects of congressional renewal every few years.
“With predictability, the industry can go through additional product-development cycles, if you will – investing in manufacturing, investing in R&D, investing in new products that will further drive down the cost of wind,” said American Wind Energy Association spokesman Peter Kelley.
Industry officials point to the production tax credit’s recent track record: Before the cliff deal, the credit expired in 2004 before Congress stepped in. Since then, installed capacity in the U.S. has ballooned from 9 gigawatts to more than 60 gigawatts. In addition, industry employment has grown; the cost of a turbine has plunged; and a larger percentage of turbine parts is manufactured in the U.S.
Still, the prospects for a long-term extension don’t look good amid general gridlock and strong opposition to the PTC from some Republicans.
In the previous Congress, PTC supporters introduced legislation that would have extended the credit through 2016. That legislation went nowhere.
PLAN B: Long-term phase-out
A more likely scenario is Congress will adopt a phase-out that will ramp down the credit over several years.
The American Wind Energy Association released an analysis in December that identified a phase-out plan that “would sustain a minimally viable industry able to continue achieving cost reductions.”
Under the scenario analyzed by AWEA, the full PTC would have been extended through 2013 followed by 90 percent of the credit in 2014, 80 percent in 2015 and so on until 2019, when the credit would end.
That proposal, however, was largely contingent on Congress approving a broader corporate tax reform. Some wind supporters in Congress don’t see that happening.
“Frankly, I don’t think we’re going to have corporate tax reform,” said Sen. Chuck Grassley (R-Iowa), the author of the original wind credit.
Others are more hopeful. The House Ways and Means Committee has begun holding meetings to talk tax reform.
“We’ll have a better read in the next few months about how aggressive people are going to be and whether a larger deal is possible,” said Ways and Means member Earl Blumenauer (D-Ore.).
Sen. Debbie Stabenow (D-Mich.), the new chairwoman of the Finance Committee’s energy and natural resources panel, said she hopes the PTC will be considered as part of tax reform but that it’s too soon to tell.
“I support whatever allows us to continue the credit, but right now, to be honest with you, we’re so focused on sequestration,” she said.
Any phase-out plan will probably have to pass muster with House Republicans, who are deeply split on the wind credit.
Rep. Mike Pompeo remains confident the PTC will end this year.
“I am convinced now there’s a majority here that recognizes it’s a bad policy,” said the Kansas Republican, who sponsored legislation in the previous Congress that would have ended the PTC and various other energy subsidies. “Whether it is part of something bigger or we just mosey to the end of the year and it goes away again, I think the wind-production tax credit’s in its final days.”
But Pompeo acknowledges a phase-out might be instituted anyway if recent history is a guide. A few times in the past few months – including the fiscal cliff deal and the more recent reauthorization of the Violence Against Women Act – bills passed the House with the support of Democrats and only part of the Republican majority.
Asked if he could ever support a PTC phase-out, Pompeo said he could – if the industry agrees never to lobby on the issue again without facing huge penalties.
“Demonstrate to me that you’re done with this,” he said. “Demonstrate to me that you mean it, that you’re done lobbying for this, you’re done beating up members and having grass-roots organizations write letters. Demonstrate to me that you literally mean that when its time is done, its time is done.”
Pompeo said he’s sure a legal way can be found to structure such a provision.
Kelley, the wind industry spokesman, wouldn’t comment specifically on Pompeo’s suggestion, saying only that the group’s December phase-out analysis “speaks for itself.”
PLAN C: Another short-term extension
Even if Congress takes up tax reform, observers note there’s no guarantee lawmakers will come to any agreement this year.
That leaves the industry in a similar place as last year: waiting and watching for another short-term extension.
“I think it’s an issue when you get down to Dec. 31,” Grassley said. “Will it be renewed? I think it will if everything else is renewed.”
Unlike last year, though, the industry has a little more time before it needs to know the PTC’s fate. That’s because January’s extension changed the PTC’s requirements to make it easier for projects to qualify.
Before, projects had to be active and generating electricity to receive the credit. Because of the long time required to plan and build projects, the industry saw a big slowdown last year as developers weren’t willing to gamble that Congress would act.
But now, the credit applies to any project that has begun construction by Dec. 31. So developers may be willing to wait until closer to the end of the year before making any decisions.
“Right now, we’re just thankful that Congress extended the PTC for a year,” Kelley said. “We need to focus on building more wind projects, maintaining the manufacturing sector that we have and regain[ing] the momentum that was put on hold last year.”
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