The US wind market may be “substantially” larger than the industry envisaged just two weeks ago, thanks to new guidance on the production tax credit (PTC) – but only if developers move quickly, says Vestas Americas president and incoming AWEA chairman Chris Brown.
Following the multi-year PTC extension passed by Congress last year, the American wind industry scored another huge win this month when the Internal Revenue Service (IRS) issued updated guidance on what developers must do to qualify projects for the tax credit.
Previously, as long as developers entered physical construction or “safe-harboured” a project by investing 5% of the budget in a year in which the PTC was live, they then had two years to bring it to completion while still qualifying for the tax credit.
As of this month, however, that window has been doubled to four years. The ruling is “very favourable” for the industry, Brown tells Recharge, adding that it “yanks up the forecast pretty substantially for 2018, 2019 and 2020”.
Thanks to the new guidance, projects that qualify for the full PTC by the end of this year will still be crossing the finish line in 2020.
“I think we’ll have a situation where the smart players will qualify significant amounts of turbines [to satisfy the safe-harbour requirements] and then build them out over the four years.”
By that time the Clean Power Plan will have started kicking in, assuming it is not struck down by the Supreme Court.
“But,” Brown adds, “you only have six months to satisfy it.”
“So we [as an industry] have to get stuff done. You can be planning, but you have to be executing at the same time. There’s a lot of work to get done before December 31.
“It’s going to be a busy conference,” says Brown, who will speak on Tuesday morning at AWEA Windpower 2016. “People are going to have to make decisions.”
The new IRS guidance “yanks up the forecast pretty substantially for 2018, 2019 and 2020”, says Brown, who is incoming board chairman of the American Wind Energy Association in addition to his day job at Vestas, the second-largest turbine supplier in the US last year.
The additional two years for building PTC-qualified projects is a major opportunity for developers and for utilities that might have been slow to embrace wind power in recent years, Brown says.
For example, “utilities in the Midwest that maybe didn’t take advantage significantly of what was [available] to them over the last couple of years will see this as a last opportunity to get their rightful share, to make sure their rate bases are there”.
With the cost of wind power cheaper than ever and still declining, and a policy landscape more favourable than ever, the mood in the US wind industry today is “we’re winning”.
But he cautions against “irrational exuberance”, saying that for the sector to reach its full potential over the next few decades, much still needs to be done in areas like transmission and permitting, where “solutions don’t come overnight”.
Although the levelised cost of wind power has fallen by two thirds over the past five years, further cost reductions must be achieved, because at some point the PTC will disappear for good, and “you can’t take away $23/MWh and not have it be significant”.
“We’re the fuel of choice right now – us and solar. We’ve turned the corner on things like coal. The Dukes, the Southern Companies, the NextEras, they’re not buying coal any more.
“But natural gas is still at $2,” he notes. “On the margins, that’s going to set the price in some markets.”
Still, Brown sees the US energy industry as being on the cusp of an entirely new era, shifting from an “extractive to a technology industry”.
“If you look out 15-20 years, we’re on the right side of history,” he says.