The U.S. wind market is losing the main subsidy that’s fueled its spectacular rise to 100GW. Not everyone is sad to see it go.
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, breaking from its historic whipsawing pattern of short-term expirations and extensions.
Given that visibility, project developers and their equipment suppliers have strategically planned billions of dollars of investments 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 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 the narrative I’d prefer, rather than yes or no on the PTC.”
Source: greentechmedia
