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On PTC, Wind Industry Seeks a Winning Hand

Dexter Gauntlett — December 27, 2012

The American Wind Energy Association (AWEA) sent a letter in December to leading members of Congress, urging them to include a modified extension of the wind energy Production Tax Credit (PTC) in the fiscal cliff budget deal.  The existing PTC is scheduled to expire at the end of the year.  The cleantech industry, which has fared well in times of economic, political, and natural disasters, is counting on yet another last-minute breakthrough on a policy that should have been enacted a long time ago: the stepped-down wind PTC that replaces the industry killing on-again-off-again cycle with a predictable, long-term approach that phases the tax credit out over time.

Here’s an excerpt from the letter:

“The industry has undertaken an extensive analytical effort to determine what level of the PTC over a specific number of years would be needed to keep the industry minimally viable.  The analysis assumed that the industry would meet ambitious technology-improvement and capital cost targets.  Analytical results indicate that a PTC beginning with 2.2 cents per kilowatt-hour, or 100% of the current level for projects that begin construction in 2013, followed by 90%, 80%, 70%, 60%, and then 60% of the current level for projects that are placed in service in years 2014 through 2018, with no PTC in 2019 or afterwards, would sustain a minimally viable industry, able to continue achieving cost reductions.”

The damage has already been done for 2013, as U.S. installations are projected to drop from approximately 10 gigawatts (GW) this year to less than 2 GW in 2013.  The stepped down approach could return the industry to the 8-10 GW annual installation range, given the likelihood of cost reductions and of renewable portfolio standard target deadlines immediately following that time period.

Wind Power Capacity Growth, United States: 1992-2012

(Source: EIA)

Back at the Trough

It’s unfortunate that it has taken this long to get this kind of framework on the table.  It appears that the wind industry overplayed its hand, counting on the richer $0.022 per kWh incentive in shorter increments, renewed every few years.  Given the variability of American energy politics, that proved to be wishful thinking.

For years the wind industry has made the argument that wind is a mature technology that can produce cost-effective renewable energy today and is on a cost-reduction path to compete with fossil fuels, but needs federal support in the meantime.  Granted, the American tax-credit system routinely defies logic on multiple levels, doling out billions to the oil and gas industry each year, but 2 to 3 years is not a realistic amount of time to drive down costs and reach market stability for any new technology.  Especially when the entire industry shrivels during the interim negotiating period, as we are seeing today.

You have to credit the hard working people working at AWEA and in the industry more broadly for their impressive accomplishments to date, from both a wind energy deployment and economic growth perspective.  They were counting on wind being recognized by Congress as a clear win-win bipartisan issue that has been a boom for red and blue states alike.  Instead, the wind industry has had to come back to the trough every few years and bargain for short-term extensions at the expense of a healthier longer-term approach that would have provided both predictability and pressure on the industry to reduce costs.

Given the macro trends at play – specifically, low-cost natural gas and modest U.S. electricity demand growth – the stepped down approach is no guarantee of industry success.  Under the circumstances though, it’s still the most sensible policy moving forward.  Hopefully it’s not too late.

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