Another Wind PTC Extension? No Thanks, Many in Industry Say

The wind production tax credit (PTC) is heading out the door,
and many in the industry are content to wave goodbye.

It might seem like a no-brainer for the U.S. wind industry to
push for another extension of the PTC, the main subsidy that’s
fueled the market’s rise — worth an inflation-adjusted $24 per
megawatt-hour for the first 10 years of a wind farm’s life.

Yet with just 18 months remaining for developers to finish
building projects qualified for the full PTC, many in the wind
business either oppose another PTC extension or warn of unintended
consequences should the multi-year phaseout be modified.

Jose Antonio Miranda, CEO for the Americas at turbine supplier
Siemens Gamesa Renewable Energy, said in an interview that while
more immature technologies like offshore wind still warrant
subsidies, the wind and solar industries should stand behind the
scheduled phasedowns of the PTC and the solar investment tax credit
(ITC).

Those industries “are already selling very big volumes
worldwide, and in this country,” Miranda told GTM on the sideline
of the recent Windpower conference in Houston. “I think phasing
down the PTC and ITC at a point where we don’t need them anymore
is the right choice, the right decision.”

Not everyone in the wind business may be ready to see the PTC
disappear. But even the American Wind Energy Association (AWEA),
the industry’s main trade group, has not said it will push for
another extension. Instead, its priorities include what will likely
be longer term campaigns around a national carbon price and a
buildout of the country’s increasingly constrained grid
infrastructure.

Rather than a wind-specific incentive, “AWEA is encouraging a
widely applicable, transferable technology-neutral tax credit based
on carbon emissions,” said Bree Raum, AWEA’s vice president of
federal affairs, in an emailed statement.

The wind industry’s hands-off approach to the PTC phasedown
stands in contrast to the U.S. solar industry, whose main trade
group has
confirmed
that its “number one priority” is pushing for a full
extension of the ITC.

Unintended consequences

Several factors are affecting the wind industry’s seemingly
nonchalant attitude towards its sunsetting subsidy.

There are elements of pride and political pragmatism involved.
The industry argued in 2015 that it would not need any more
subsidies if granted a “glide path” towards the PTC’s
expiration. To go back on that would be embarrassing.

Even
Charles Grassley
, the Republican senator from Iowa who helped
create the PTC more than 25 years ago and has long been one of the
industry’s most important political allies, has taken a dim view
of another extension — having promised his colleagues that the
2015 deal would be the last.

“Tax credits that are technology-specific are hard” in the
current political environment, said Rich Powell, executive director
of ClearPath, a pro-nuclear conservative group that supports
efforts to mitigate climate change.

“What would be more straightforward is a technology-inclusive
tax credit, covering all clean or very low emission energy
technologies and that permanently change the incentive set for
utilities,” Powell said last week in Philadelphia at the Edison
Electric Institute’s annual conference.

Beyond political considerations, there are market and supply
chain realities to think of.

The multi-year PTC phaseout secured in 2015 was a breakthrough
because it gave the market unprecedented visibility, following its
historic whipsawing pattern of short-term expirations and
extensions.

Given that visibility, project developers and their equipment
suppliers have planned strategically around the phasedown, which
sees the PTC decreasing from 100 percent for wind projects that
qualified in 2016 to 40 percent for those qualifying this year.
Future wind farms will receive no federal incentives.

Once a project has locked in the PTC at a given level, its
developer has four full calendar years to build it — meaning the
last wind farms benefiting from the full PTC must come online by
the end of 2020. As a result, 2020 is expected to set new
installation records, with Wood Mackenzie Power & Renewables
predicting 13.6 gigawatts.

RES Americas, one of the country’s biggest renewables
developers and builders, has not taken a formal position on a PTC
extension, said Shalini Ramanathan, vice president of origination.
But Ramanathan noted some of the potential unintended consequences
of tinkering with the PTC in the middle of its arc.

“If you’ve gone long on turbines and locked in 2019-vintage
technology through safe harboring to get the 100 percent [PTC],
then the idea of competing with new technology that also has the
100 percent is not a very encouraging idea,” she said in an
interview.

“It points to the reality that when you work on
infrastructure, you place big bets early. Regulatory uncertainty is
very challenging.”

Finally, there’s the question of whether onshore wind even
needs a federal subsidy any more. New wind farms are the cheapest
form of generation across large regions of the country, with
power-purchase agreements now routinely signed at prices far below
the $24/megawatt-hour PTC.

Some argue that that when the PTC goes away, so too will

the need for tax-equity finance
, bringing cheaper capital into
the market.

Dan Shreve, WoodMac’s head of global wind energy research,
believes the potential cons of a revised or expanded PTC outweigh
the potential advantages.

Fighting for another extension would waste political capital the
industry could more usefully spend on things like pro-transmission
policies, Shreve said in a recent presentation.

“The fact of the matter is that the onshore wind market is
mature, in terms of EPC practices, turbine supply, logistics,”
Shreve said. “The cost position of wind has come down so much
that the PTC is no longer needed.”

“If we start thinking about longer term issues, storage and
long-haul transmission are going to be bigger issues if we want to
sustain the market in a meaningful fashion post-2030,” he
added.

Not without its dangers

All that being said, there are reasons why the wind industry
might want the PTC around for a while longer — and may still
unify behind a push for another extension.

Democratic lawmakers who support extending federal subsidies for
renewables note that the landscape is very different than in 2015,
with a pro-coal president in the White House and protectionist
trade policies in place that could drive up the cost of a wind
farm.

Then there’s the fact that the solar industry got what amounts
to a better deal in 2015 with its multi-year ITC extension. Not
only does the ITC — worth 30 percent of a project’s cost at
its full value — start phasing down later than the PTC, but it
stops decreasing altogether at 10 percent.

That “policy mismatch” will give solar a “competitive
advantage over wind” in the 2020s, Shreve said.

“The production tax credit is phasing out. The investment tax
credit is phasing down but not out,” he said. “The solar
community is left with a 10 percent ITC that basically goes on
forever.”

At the end of the day, the wind industry’s attitude towards
its own subsidy may boil down to what other energy technologies are
receiving.

Part of the industry’s thinking in volunteering to give up the
PTC in 2015 was that other energy technologies would give up their
own subsidies, said Chris Brown, president of sales and services in
the U.S. and Canada at global wind turbine supplier Vestas.

“If we’re talking about extending the PTC, I’m fine with
that given the oil and gas majors still have their depletion
allowances and all their tax incentives,” Brown said in an
interview.

“Can we compete without it? Yeah,” he said. “In the rest
of the world we’re not provided with that incentive.”

“But the right narrative is, ‘Let’s talk about a level
playing field,’” Brown said. “Everyone wants to be treated
equally. That’s probably the narrative I’d prefer, rather than
yes or no on the PTC.”

Source: FS – GreenTech Media
Another Wind PTC Extension? No Thanks, Many in Industry Say