All signs point to Congress reinstating a tax break that has been a major driver of U.S. wind power development, General Electric Co. Chairman and CEO Jeffrey Immelt said April 17.
The production tax credit, or PTC, which expired at the end of 2014, compensates developers for the amount of electricity their wind farms generate. While the subsidy has been a boon for the industry, wind companies complain of being whipsawed by expirations and extension that led to dramatic fluctuations in construction activity in recent years.
While some think the Republican-controlled Congress will be a tough place to drum up support once again, lobbyists insist the industry has spread to enough states to draw allies from both political parties.
“We always think about the U.S. in the context of the PTC, and there’s nothing we see today that indicates the PTC is not going to get rolled over in some capacity,” Immelt said on GE’s first-quarter 2015 earnings call. “So that kind of keeps the U.S. at a kind of, let’s say, steady state.”
Turbine manufacturers, including GE, have been busy lately. Developers in 2014 installed 4,854 MW of new wind capacity in 19 states, and 12,700 MW were under construction at the end of last year, according to the American Wind Energy Association, a trade group.
Developers had until the end of 2014 to start physical work or incur at least 5% of costs on projects that they plan to qualify for the PTC, which provides $23 per MWh of electricity that a wind farm generates. Projects that are online by the end of 2016 will qualify without developers having to prove they worked on them “continuously.”
GE, whose turbines account for about 42% of the U.S. wind fleet, according to a 2014 market report from AWEA, said turbine orders during the first quarter dipped 11% year over year to 376, while turbine sales were off 27% to 472. Equipment orders across GE’s power and water division were down 29% during the first three months of 2015, a reflection of “financing delays and timing of agreements but not competitive losses,” GE Senior Vice President and CFO Jeffrey Bornstein said on the call.
The company expects wind and thermal orders to be “up double digits” in the second quarter, Bornstein said. It is projecting between 3,000 and 3,200 wind-turbine shipments in 2015 and a similar number in 2016.
GE reported a first-quarter net loss of $13.6 billion, or $1.35 per share, compared to earnings of nearly $3 billion in the year-ago period as the company incurred about $16 billion in charges associated with its exit from GE Capital. Excluding those charges, GE reported first-quarter earnings per share of 31 cents.
Industrial segment profits were up 9% year-over-year to $3.6 billion on $24.4 billion in revenue. The power and water division reported $5.7 billion in first-quarter revenue, up 4% from the year-ago quarter, while revenue in the energy management division nudged up 1% to $1.7 billion. The power and water and energy management divisions house GE’s renewable energy businesses.
Like other companies in the renewable energy sector, GE said a shift is underway toward international markets. “It’s going to be more international than domestic as we move forward, no question about that, but roughly the same kind of volume,” Bornstein said on the call.
GE is also feeling pressure from a drop in oil prices during the past year. Revenue in the company’s oil and gas division was down 8% in the first quarter to about $4 billion, while the division’s profits were off 3% year over year to $432 million.
“This will be a challenging year in oil and gas, but the team has been aggressive on re-making the cost structure of the business, and we believe that we remain within the scenarios in supporting our total-year industrial guidance of $1.10 to $1.20 [earnings per share]” Bornstein said.
Speaking at Bloomberg New Energy Finance’s annual summit in New York City on April 14, Michael Liebreich, founder of Bloomberg New Energy Finance and chairman of its advisory board, said the world looks to be entering “an era of lower oil prices.”
In the renewable energy industry, all eyes are on Congress. The wind industry is lobbying lawmakers to reinstate the PTC, which will essentially stop supporting development at the end of 2016. Also at the end of 2016, the production tax credit is scheduled to fall from 30% to 10% of solar project costs. The timing could create opportunities for the two industries to coordinate their lobbying efforts.
“For the first time they should be aligned in their interests. What effect that has, I don’t know,” Timothy Kemper, co-director of CohnReznick Capital Markets Securities’ national renewable energy industry practice, told SNL Energy on April 14.
Phyllis Cuttino, director of The Pew Charitable Trusts’ clean energy initiative, has been troubled by a push in Congress to make some temporary tax credits permanent. “So the smaller you make the pool of tax incentives that have to be passed … the power of that pool becomes smaller in terms of pushing it over the finish line,” she said April 14 at the BNEF annual summit. “So if the House has a partner in the Senate in terms of making these things permanent, I think it makes it more difficult to pass tax extenders.”
In past years, tax-extender debates have not been venues for discussing policy changes, such as phasing out the subsidies over a number of years. “It’s either on the list or not on the list,” Marathon Capital CEO Ted Brandt said. “And to me it’s fairly obvious that there should be some kind of a deal … towards maybe … a phase-out five years from now. And that conversation apparently doesn’t get to happen because extender bills only change dates.”
Renewable energy incentives could also be in jeopardy if Congress moves forward with comprehensive tax reform, said Judd Gregg, a former Republican senator from New Hampshire and co-chairman of the advocacy group Nuclear Matters. “[T]he whole theory behind tax reform is you reduce deductions and exemptions across the board and you use the revenues from that to reduce rates,” Gregg said at the conference in New York City. “The only way you accomplish it is you don’t give anybody a pass.”
Kemper said the fate of individual exemptions and tax breaks could depend on public opinion. “It’s all in the details,” he said. “Constituents matter for Congress. Every time you talk to congressmen and senators, they always ask, ‘Is this in my district? Can you point to it in my district? Do my constituents use it?'”
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