The most significant U.S. tax credit for solar power will expire at the end of next year, and the biggest one for wind power already has. Renewable-energy developers aren’t losing much sleep over it.
“The fundamentals of the renewable business have never been stronger,” Jim Robo, chief executive officer of NextEra Energy Inc., told investors during a conference call Wednesday. Robo said the largest North American wind and solar builder will as much as double its resources for developing clean energy projects over the next few years.
The need for tax breaks, which once underpinned the economics of wind and solar projects, is fading as prices fall and the technologies become more competitive with electricity produced from fossil fuels. At the same time, other federal policies such as the Obama administration’s Clean Power Plan are creating new incentives for renewable energy plants. Developers are planning now for the day when they will no longer receive the credits.
The end of the production tax credit for wind power will lead to “only a temporary blip” in the market, Armando Pimentel, head of NextEra’s renewable development unit, said Wednesday. Without the subsidy, the economics for wind farms will be “very attractive” by the end of the decade.
The federal production tax credit pays owners of wind farms 2.3 cents for each kilowatt-hour of electricity generated. To qualify, projects needed to begin construction by the end of 2014 and must be complete by the end of 2016.
Wind-generated electricity will be competitive with natural-gas generators even without the renewable energy tax subsidy, Xcel Energy Inc. Chief Executive Officer Ben Fowke said Thursday during a conference call with investors. Xcel, which owns utilities from Minnesota to Texas, plans to add 800 megawatts of wind power in Minnesota by 2020, in part to comply with federal clean energy regulation, Fowke said.
Solar will also remain competitive, Pimentel of NextEra said. The federal investment tax credit, which reimburses 30 percent of the cost of developing solar projects, will be eliminated for most projects at the end of 2016 – for commercial development it will decline to 10 percent.
Industry groups including the American Wind Energy Association and Solar Energy Industries Association are pressing Congress to extend the tax credits, which were enacted in 1992 for wind and in 2005 for solar. Executives say they can live without the breaks.
“If the PTC expires we will be fine, we can get by,” Ahmad Chatila, CEO of SunEdison Inc., the world’s biggest renewable energy developer, said in an interview.
Solar manufacturers also are preparing for new tax policies.
“We believe we can manage through it with our efficiency improvements,” SunPower Corp. Chief Executive Officer Tom Werner said Wednesday on a conference call with analysts and investors.
Costs for clean power have declined so much in recent years that eliminating the credits won’t have much of an impact on electricity prices, said Jigar Shah, a renewable energy investor.
“Once the ITC goes away power contract prices may go up by 1.5 cents a kilowatt-hour,” said Shah, who also co-founded SunEdison. “It’s really not a big deal.”
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