Wind Energy Projects Rush to Start Construction in Advance of Expiring Tax Credit (Again)
- December 9, 2013
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It’s December, and that means the wind power industry in the United States is in the middle of what has become an all-to-frequent holiday season tradition: the mad dash to get projects in the ground before the impending expiration of a federal production tax credit (PTC) worth $23 per megawatt-hour (MWh).
After installing a record 13,131 megawatts (MW) in 2012, the wind industry’s momentum came crashing to a halt with the expiration of the PTC at the end of 2012. While the tax credit lapsed for just two days before being restored by Congress as part of the Fiscal Cliff deal, the damage had already been done. Just 70.6 megawatts (MW) were installed through the first three quarters of 2013, a 96 percent decline from the year earlier.
Now, facing another expiration of the tax credit on January 2, 2014, wind farm construction is booming again. Utilities are rushing to put shovels in the ground and begin construction before year’s end at over 7,600 MWs of projects scattered across the country.
Utilities have signed over 5,670 megawatts (MW) of new power purchase agreements (PPAs) for wind projects and received regulatory approval to build over 1,870 MW of utility-owned projects, according to the American Wind Energy Association (AWEA).
While the boom and bust cycle driven by the political uncertainty surrounding the PTC is sadly familiar, it has a new twist this year. When Congress reinstated the briefly lapsed credit in January, they made an important amendment that makes eligible for the credit any project that begins construction by January 1st, 2014. In previous years, wind farms had to be completed and placed in service before the end of the year to claim that year’s credit.
As a result of this change, thousands of megawatts of wind farms are getting underway in the fourth quarter of 2013, although their completion dates may stretch well into 2014 and beyond. That means the project pipeline will continue for some time even with an expiration of the tax credit at year’s end, blunting somewhat the typical hard crash experienced when the PTC expired at the end of 1999, 2001, 2003, and 2012.
Graphic source: Union of Concerned Scientists
MidAmerican Energy alone has reportedly begun construction on five wind projects totaling 1,050 MW. The company reports that the projects, which are spread across the company’s home state of Iowa, will be fully completed by the end of 2015.
To ensure the projects all qualify for the PTC, MidAmerican began construction at all sites in November and, after concluding a competitive tender process, secured wind turbines for all five projects from Siemens Energy.
Once all five projects are online, wind energy will make up approximately 39 percent of MidAmerican Energy’s generation portfolio, cementing the Berkshire Hathaway-owned utility’s status as the largest utility owner of wind power in the country.
While construction will continue in 2014 on these and other projects getting underway before the end of the month, the PTC, by all accounts, will not.
Politico reports that Senate tax writers in Congress aren’t even talking about the traditional package of tax extensions that usually rounds out the Congressional holiday calendar and provides a vehicle for a last-minute PTC extension.
As Politico’s Andrew Restuccia reports, “Without an extenders package, PTC supporters must pin their hopes on reviving the tax credit as part of broader tax reform, which isn’t expected to move until next year, if at all.”
AWEA and other wind supporters are reportedly now walking the halls of Congress with data showing the sharp drop-off in wind installations through most of 2013 and urging Congress to think twice about letting the PTC lapse again.
Yet opposition to the credit is mounting from a coalition of energy industry interests, including Chicago-based Exelon and the American Energy Alliance, the political arm of the energy industry-funded Institute for Energy Research.
Exelon, the nation’s largest owner of nuclear power, has been leading the charge against the PTC for the last several years. Wind power is reducing wholesale prices in Midwest power markets, eating into the profits of baseload power plant owners like Exelon.
“Exelon opposes further extensions of the wind production tax credit, and we will continue to educate policymakers about the subsidy’s significant unintended consequences on wholesale electricity markets and how it puts other, more reliable, clean generation at risk,” Exelon spokesman Paul Elsberg said in a statement reported by Politico.
Given mounting opposition and little signs of a bipartisan Congressional tax extension deal before year’s end, a timely PTC extension is facing long odds.
In my next column, I’ll explore what a permanent PTC expiration might mean for the wind industry. Stay tuned…