Silence deafens hope for wind tax credit extension

Dec 22 - "Hutchinson News, The (KS)"

The most notable thing about the impending expiration of a federal tax credit for wind energy may be the quiet surrounding the event. That's in sharp contrast to the debate that swirled around the issue this time a year ago, when the credit also faced expiration.

The quiet, industry experts said, can be attributed to changes in how to qualify for the credit and the lack of any legislation to which renewal might be attached.

The issue, however, is likely to begin to churn again sometime next year as the industry looks at its order books for 2015 and beyond.

The credit

The Production Tax Credit allows a 2.2-cent per kilowatt credit to buyers of wind-generated electricity. It expired Dec. 31, 2012, but as part of the "fiscal cliff" budget deal, was extended a year.

The 2013 extension allows projects started this year, or on which a substantial amount is spent, to qualify for the credit. The previous rules required projects be in service before the tax's expiration.

While slow to ramp up, with only 1.6 megawatts (MW) of new generation installed by mid-2013, orders have since taken off, helping ensure U.S. wind turbine production through next year and possibly into 2015, according to data from the American Wind Energy Association (AWEA).

During the third quarter, the industry installed 69 MW of new wind, and utilities issued at least 28 "requests for proposals" for new renewable energy, leading to contracts for at least 3,900 MW of new wind builds, AWEA reported last month.

"Companies are really focused on meeting the criteria by Dec. 31," said Elizabeth Salerno, AWEA's director of industry data and analysis. "There are some very specific things they need to do to qualify... The idea is there is no turning back on the project, there has to be enough of an investment that the project will get to the finish line."

"Because of (the language change) there's somewhat of a less serious urgency about this," agreed Ruth Douglas Miller, director of Kansas State University's Wind Application Center. "The wind industry has some momentum to keep things going through 2014 without too much panic -- though it doesn't mean they're happy about it."

Danger of silence

The problem with the lack of any tax discussion, Salerno and several policy watchers said, is that there can be no movement on again extending the credit or creating a new one.

There are no plans in Congress to introduce tax extenders as free-standing legislation, so proposals would have to be attached to another measure to go forward.

Sen. Max Baucus, chairman of the Senate Finance Committee, and Dave Camp, R-Mich., House Ways & Means Committee chairman, are leading an effort to change the federal tax code.

"All tax-related issues are being discussed within that context," Salerno said. "Nothing is being split out and addressed in a different vehicle. It's all bundled together."

There were indications last week that nothing on tax reform will come out of committee this year. Whether the issue is dead for this session was less clear. Baucus, meanwhile, announced he'll not run for re-election.

Also, a two-year budget deal was passed by Congress last week, further limiting opportunities for introduction of a new tax credit as a rider on a funding bill.

"As it stands now, barring any tax reform progress, I think it's on its way out for at least a while," said Nate Birkhead, an assistant professor of political science at Kansas State University. "The current Congress' attention is elsewhere, so it's an easy thing to cut."

"We're monitoring the situation," Salerno said, and waiting to see when opportunities or options to introduce a new bill may arise. "There is no clear schedule or timeline."

"We know exactly what happens when there is an expiration date or cliff looming," Salerno said. "It creates a cyclical nature, where companies have to make hard decisions on how much to invest and how to proceed."

Last year, because the anticipated tax expiration created a significant lull in orders, Hutchinson's Siemens plant laid off the majority of its workers. It rehired most of the workers in the spring, after extension of the tax and low costs created enough new turbine orders.

Still needed?

Given the lead time of about 18 months for a project to go from paper to completion, and thus the anticipated date when projects awarded this year will begin tapering off, "we start to see some challenge of that uncertainty and its impact on the market by mid-2014," Salerno said.

If the PTC is renewed in 2014 the slowdown that always comes when it expires would be somewhat minimized. K-State's Douglas Miller said.

If it does resurface, however, Birkhead said, it will likely be in a different format.

One thing that may make getting an extension more difficult is how well the industry is doing.

Because of technological advances, when combined with the tax credit, wind is at near record low prices.

"Utilities are being proactive in seeking out wind, which has pulled a lot of projects into the market that may not have proceeded otherwise," Salerno said. "Wind is just an incredible deal now, offering a unique opportunity. (Utilities) can really lock in some affordable rates for 20 or 30 years."

Even with the orders, however, those within the industry say there needs to be more certainty on federal energy policy.

"If there's the possibility of a PTC, why sign a power purchase agreement on this price when it could b e 2 cents lower?" K-State's Douglas Miller said. "It would be better to know what they're going to do, to just be definitive about it. But the nature of the U.S. government is not definitive. It's the uncertainty that is the awful thing."

"Like other domestic energy sources, American wind power needs a predictable, stable, pro-growth tax policy in order to keep developing more efficient technology, creating new U.S. jobs and attracting up to $25 billion a year of private investment into the U.S. economy," Myca Welch, a spokesperson with the Siemens Wind nacelle manufacturing plant in Hutchinson, stated in an email.

"In the absence of comprehensive tax reform legislation, Siemens supports a multi-year PTC extension so the industry has the certainty it needs to continue to make investments and to achieve competitive parity with other traditional forms of electricity generation," Welch stated.

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