LOCATION/TYPE

NEWS HOME


[ exact phrase in "" • results by date ]

[ Google-powered • results by relevance ]

Archive
RSS

Add NWW headlines to your site (click here)

WHAT TO DO
when your community is targeted

Get weekly updates
RSS

RSS feeds and more

Keep Wind Watch online and independent!

Donate via Stripe

Donate via Paypal

Selected Documents

All Documents

Research Links

Alerts

Press Releases

FAQs

Campaign Material

Photos & Graphics

Videos

Allied Groups

Wind Watch is a registered educational charity, founded in 2005.

News Watch Home

US wind, solar finance alternatives rise as sector rushes against looming tax credit expiration 

Credit:  Resources are being rapidly deployed ahead of the post-2020 phase-out, but political uncertainty makes turmoil unavoidable. | Herman K. Trabish | Utility Dive | Oct 15, 2019 | www.utilitydive.com ~~

Expiring tax credits for wind and solar projects offer near-term promise and long-term uncertainty, with the U.S. wind industry on track to become the nation’s fastest growing source of electricity generation by the end of 2020 and the solar industry potentially soon following.

Both face bursting bubbles due to the loss of tax incentives, analysts told Utility Dive. But the resources have other advantages and ideas are emerging on how to finance the projects, which could propel them into the next decade.

One developing finance approach would take advantage of potentially “billions of dollars” waiting to go into U.S. wind and solar projects from foreign and other investors without a use for tax credits. Another would channel investor funds to portfolios of smaller wind and solar projects that are more difficult to manage when tax credits have to be apportioned within the portfolio.

Alternatively, a range of new technology-neutral tax credit proposals could incline lawmakers to establish long-term certainty for innovative resources that would open the way to a renewed power sector.

But first, money is expected to flow like never before to wind projects through 2020 and to solar projects in the early 2020s to take advantage of existing tax credits one last time.

Unsustainable growth

Wind’s 14% year-on-year growth forecast for 2020, driven by a rush to get projects underway before the terminating federal production tax credit (PTC), is not sustainable, analysts and advocates told Utility Dive. Momentum is likely to shift to solar energy before its federal investment tax credit (ITC) starts phasing out in 2022.

“The wind industry understands the near term opportunity, and that this demand is not sustainable without dramatic changes in federal energy policy,” Wood Mackenzie head of global wind research Dan Shreve told Utility Dive. “And investors understand the ITC for solar remains in place.”

But “wind without the PTC still crushes fossil and nuclear on price, and billions of dollars of capital without a tax appetite is waiting to come in,” Stoel Rives Partner Morten Lund told Utility Dive. And with “big ifs” about whether capital moves from wind to solar until its ITC phases down and about how potential impeachment and the 2020 elections impact markets, “there is no certainty,” Liund said.

Amid rapidly evolving political and industry developments, innovative policy proposals are emerging for wind and solar, Utility Dive recently reported. One, for technology neutral tax incentives that would create a level playing field for all sources of electricity generation, continues to attract support. But bubbles will burst before these valuable post-2020 ideas are put in place, analysts said.

Renewables and their tax credits

Supported by the PTC and the ITC, wind capacity grew from under 20 GW in 2007 to nearly 98 GW in 2018, according to a June 2019 Columbia University paper. Solar grew from “virtually zero” in 2007 to over 60 GW last year. Their combined share of U.S. electricity generation grew from 0.8% in 2007 to 8% in 2018, according to the paper.

The PTC provides an annual tax deduction for each kWh of a project’s production during its first 10 years of operation. The ITC is a tax deduction of 30% of capital invested at the end of a project’s first year of operation. The two have attracted hundreds of billions of dollars in wind and solar financing.

But the PTC began to fall in value beginning in 2017, and its value will expire entirely by the end of this year, while the ITC will phase out between 2020 and 2022.

In response, 1,577 MW of wind capacity came online in the first half of 2019, a 53% increase over the first half of 2018, according to the most recent market report from the American Wind Energy Association (AWEA). Solar added almost 2.1 GW in Q2 2019 and has a record 37.9 GW pipeline, according to the newest Wood Mackenzie-Solar Energy Industries Association report.

The tax credit phase downs have analysts and industry leaders thinking about replacement incentives.

Individual tax incentives drive deployment, but not emergence of options like long-duration storage and demand side technologies that will be essential to high renewables penetrations, according to the Columbia paper. And the tax credits’ cost has grown with wind and solar to an estimated $5.6 billion in 2018.

“Successor tax incentive policies” are needed because tax credits have proven to be “one of the few politically viable routes to bipartisan energy and climate policy progress,” according to the paper.

The PTC “contributed to the cost of wind energy falling nearly 70% in the last 10 years,” but the new need is for “tax policy that establishes parity between technologies,” AWEA VP for Data and Analysis John Hensley told Utility Dive in an email.

More comprehensive approaches, like a national carbon price or a national clean electricity standard, are not politically viable now, according to the paper. “A next generation of tax incentives can set the table in anticipation of a more comprehensive and ambitious suite of climate policies.”

Bubbles and crystal balls

Because of the ITC phase down, the hint of a solar bubble is visible, analysts agreed. The industry will add 12.6 GW this year, a 17% increase over 2018, according to the Wood Mackenzie-SEIA report. But growth will “more than double over the next five years” from its present installed capacity with additions peaking in 2021, just before the ITC phases down.

The numbers show an even bigger wind bubble, analysts agreed. In 2019, it will increase its share of U.S. electricity generation by 6%, and then grow 14% in 2020 as it becomes the fastest growing source of U.S. electricity generation, according to the latest U.S. Energy Information Administration Short-Term Energy Outlook.

Driven by the PTC phase out, wind development will peak at 14.6 GW in 2020, according to Wood Mackenzie’s August 2019 wind market report. The 2021 build will decline to 12.3 GW and continue falling.

“The current boom cycle is 100% the result of the phase out of the PTC,” Shreve said. “This is its last hurrah, and everyone in the value chain, developers, utilities and their suppliers, wants to get in the game.”

Both Stoel Rives’ Lund and Stoel Rives Partner Greg Jenner, who was Acting Assistant U.S. Treasury Secretary under George W. Bush, agreed. “After 2020, it is a different market,” Jenner told Utility Dive.

But because of the clearly scheduled phase down of the tax credit from 2018 on, the bubble burst will not be as much of a “drop off a cliff” as in past terminations of the PTC, Shreve said. Though demand will fall sharply in the 2020s, it will seem like an expected “decline to a new normal.” That could include some tax equity providers moving to solar, while the ITC remains at 30%.

Beyond 2020, the wind market will evolve, Shreve said. “Once the big party is over, onshore wind demand will fall off, but the U.S. will build 16 GW of offshore wind by the end of 2028,” propelled by state mandates in northeastern states.

The onshore market does not disappear, he added. Post-2025, the leading players, like turbine manufacturers GE, Vestas and Siemens-Gamesa, will “remain engaged,” but smaller players may not be able to capture enough of the smaller market to remain viable.

In addition, the 2020s renewables markets will be determined by the 2020 election, Shreve said. More aggressive federal climate policies could have a “tremendous upside,” but “under current factors, onshore wind demand will fall to between 3 GW and 4 GW per year through 2028.”

Utilities were reluctant to make forecasts.

Beyond 2020, MidAmerican Energy, one of the biggest utility owner-operators of wind, can only report it will reassess its opportunities, Jonathan Weisgall, VP for Policy with MidAmerican parent Berkshire Hathaway Energy, told Utility Dive.

Wind is “in the money in our service territory” and the utility “will continue developing it,” even after the PTC expires, Xcel Energy VP for Strategic and Resource Planning Jonathan Adelman told Utility Dive. “There will also be solar development, as coal is retired.”

Most importantly, the scheduled phase down has provided “clarity” and Xcel has been able to plan with “a clearer understanding of what is coming.”

Wells Fargo Renewable Energy and Environmental Finance head Philip Hopkins was less restrained. “We are still accelerating, but over time tax equity will be a smaller part of wind and solar projects’ capital structure,” he told Utility Dive. “Growth will require new financing structures.”

The new structures will include more debt financing, Hopkins said. “Both individual projects and portfolios of smaller projects can be financed with debt, and portfolios could be dominant by 2024.”

Debt financing without the PTC can make investing in portfolios of smaller projects more attractive because “there will be less deal structure constraints,” Stoel Rives’ Lund agreed.

Extensions of the tax credits are possible and would enable more growth and cost reductions for solar and wind, but today’s politics are very different from when the tax credits were extended in 2015, Hopkins said. “I wouldn’t rule out extensions, but I wouldn’t count on them.”

Solar and wind are each about half of Wells Fargo’s $7.5 billion in renewables financings and that is unlikely to change, he said. But because the impacts of the ITC phase out will come later, “we might be able to use new financing techniques for solar that we are developing now for wind.”

Moving to a technology neutral tax credit “might lead to greater innovation because more companies with more technologies might be working to achieve the overall policy objectives,” Hopkins said. “We might find more potential solutions to problems we are trying to solve.”

Good versus perfect incentives

Extending existing tax credits could increase wind by 97 GW and solar by 31 GW in 2030, and bring their share of U.S. generation to 31%, according to Rhodium Group data. But most stakeholders, including Shreve and Jenner, say extension of the PTC is essentially off the table and extension of the ITC is unlikely.

“Never say never with Congress, but a tax extenders addition to the spending bill is probably too much,” Jenner said. “The 2020 election and Ukraine will likely suck the air out of everything, and Senate Committee on Finance Chair Chuck Grassley, R-Iowa, firmly opposes undoing the 2015 deal to phase out tax credits.”

In this rapidly evolving political environment, creative alternative incentives are emerging to support renewables in a more technology neutral and politically viable way.

In January, Rep. Ted Deutch, D-Fla., introduced the Energy Innovation and Carbon Dividend Act of 2019 (HB 763). It would replace laws limiting greenhouse gas emissions with a progressive fee on producers or importers of sources of emissions.

Fees would go into a “Carbon Dividend Trust Fund” to cover the program’s costs and be dispersed as “dividend payments” to all “U.S. citizens or lawful residents.” The program would be terminated when emissions reduction targets are achieved.

The 2018 Energy Sector Innovation Credit Act (HR 7196) from Rep. Tom Reed, R-N.Y., will soon be reintroduced, Reed staffer Will Reinert told Utility Dive in an email. It is a variation on the PTC that focuses on getting technologies to market. As a technology gains market share, the amount of the PTC is reduced.

In the 2018 version, technologies were deemed eligible for the full PTC until they reached a 0.5% share of the U.S. electricity market and qualified for partial shares after that. At a 2% market share, they become ineligible. Details of the 2019 proposal are not yet available.

But the alternative tax incentive that has attracted the most attention is the Clean Energy for America Act (S 1288), introduced by Sen. Ron Wyden, D-Ore.

Until U.S. power sector greenhouse gas emissions are reduced 50%, any electricity generation technology that reduces the emissions it produces by 35% or more would be eligible for a tax credit of up to $0.023/kWh produced, like the PTC, or up to 30% of the investment, like the ITC, under Wyden’s bill. Technologies would get partial deductions if they reduced emissions by less than 35%.

“The organizing principle is the resource’s value in addressing the existential threat of the climate crisis,” American Council on Renewable Energy President/CEO Gregory Wetstone told Utility Dive. “Even non-renewable resources like nuclear and fossil fuel generation with carbon capture and storage are eligible.”

The Wyden proposal “is unlikely to be enacted tomorrow,” he acknowledged. “But it is good policy because the technology neutral framing is bipartisan. Its day will come.”

Modeling of the proposal showed it would drive an additional 500 GW of wind and solar capacity compared to business-as-usual, by making renewables “even more economically attractive,” Energy Innovation Director of Energy Policy Design Robbie Orvis to Utility Dive in an email.

More perfectly designed tax incentives would grow renewables and energy storage, but also fund research and development and phase out without causing market uncertainty, the Columbia paper reported.

“Foundational policies such as a price on carbon or a national clean energy standard” are needed, the Columbia paper said. But “a well-designed set of tax incentives” can be “a bridge toward a more comprehensive suite of decarbonization policies.”

Policymakers must not “let the perfect be the enemy of the good,” the paper concluded. Tax credits have “bipartisan appeal” and can “speed progress” toward “a future suite of comprehensive and effective energy and climate policies.”

[rest of article available at source]

Source:  Resources are being rapidly deployed ahead of the post-2020 phase-out, but political uncertainty makes turmoil unavoidable. | Herman K. Trabish | Utility Dive | Oct 15, 2019 | www.utilitydive.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial educational effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

Wind Watch relies entirely
on User Contributions
   Donate via Stripe
(via Stripe)
Donate via Paypal
(via Paypal)

Share:

e-mail X FB LI M TG TS G Share


News Watch Home

Get the Facts
CONTACT DONATE PRIVACY ABOUT SEARCH
© National Wind Watch, Inc.
Use of copyrighted material adheres to Fair Use.
"Wind Watch" is a registered trademark.

 Follow:

Wind Watch on X Wind Watch on Facebook Wind Watch on Linked In

Wind Watch on Mastodon Wind Watch on Truth Social

Wind Watch on Gab Wind Watch on Bluesky