Production Tax Credit extended as U.S. Congress steps back from fiscal cliff

The one-year extension, however, fell far short of the proposed six-year “glide path” AWEA had advocated in its December 2012 lobbying effort.

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Wind energy advocates expressed relief as U.S. Republicans and Democrats — still deeply divided on the issues of taxation and spending reduction — returned to Washington and struck a deal in the early hours of 2013 that not only averted, temporarily, the automatic tax hikes and across-the-board spending cuts that faced the U.S. if it plunged over what pundits have called the “fiscal cliff,” but also extended for one year the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for community and offshore projects.

The PTC provides a tax credit of 2.2 cents/kW-hr, after the electricity is generated, for the first 10 years that a U.S. wind farm is in operation. The extension was included as part of a “tax-extender” package drawn up last summer and was included in the 11th hour fiscal cliff deal. It covers all wind projects that start construction in 2013, says the American Wind Energy Assn. (AWEA, Washington, D.C.). “Companies that manufacture wind turbines and install them sought that definition to allow for the 18 to 24 months it takes to develop a new wind farm,” said AWEA’s Jan. 2 statement.

The one-year extension, however, fell far short of the proposed six-year “glide path” AWEA had advocated in its December 2012 lobbying effort. Outgoing AWEA CEO Denise Bode had hoped the U.S. Congress would implement a longer extension that would phase out the credit by 2018. It would have started at 100 percent of the current 2.2 cents/kW-hr for projects started in 2013 and dropped to 90 percent of that value for projects placed in service in 2014; to 80 percent in 2015; to 70 percent in 2016; to 60 percent in both 2017 and 2018; and end in 2019. Bode’s analysis indicated that this plan would have enabled the wind energy industry to establish a stable base market in the U.S. that it could build on, with further market and technology innovation. “Policy certainty,” Bode contended, “is the only way the industry will be able to make long-term investment decisions.“

Rob Gramlich, who stepped up as AWEA’s interim CEO on Jan. 2, sounded a positive note: “Now we can continue to provide America with more clean, affordable, homegrown energy, and keep growing a new manufacturing sector that’s now making nearly 70 percent of our wind turbines in the U.S.” Nonetheless, it was clear to many observers that history could repeat itself. Uncertainty about the PTC’s future caused a rush to complete projects before the end of 2012 and a loss of confidence in the U.S. wind industry’s prospects for 2013. Developers halted most wind farm projects, causing a sharp downturn in wind equipment orders and resulting in thousands of worker layoffs, including those who build the composite wind turbine blades. Congress did nothing to avert the same sort of rush followed by a collapse of confidence that will occur when 2013 draws to a close. Industry commentators say the long-term shape and extent of support for the sector remains a cause of major uncertainty, despite the one-year reprieve.

AWEA noted that it faced fierce opposition in Washington. Critics of wind energy, including fossil fuel interests, claimed falsely that the wind industry really wanted to be subsidized indefinitely, and those critics had been pressuring Congress to allow the PTC to expire. Fiscal conservatives contended that the country couldn’t continue to subsidize wind energy while it faces record budget deficits. Further, Gramlich took the AWEA helm after a year of internal conflict. AWEA’s 2,000 member companies struggled to strike their own deal on a policy, going forward, that would balance competing interests. Although all members wanted a PTC extension, they lacked consensus on the issues of how long the PTC should be extended, as well as if and when it should permanently expire. Bode’s departure leaves unanswered questions about the association’s direction in 2013.