Full version: US wind on the brink?

Felicity Carus

America's wind industry is simultaneously on course for a record-breaking year of installations and on the brink of catastrophe – and a lot has to do with the boom and bust of the Production Tax Credit (PTC).

This article is taken from the current issue of Renewable Energy Focus magazine (March/April issue). To register to receive a digital copy click here.

Around 8.5 GW of wind will be added this year alone to the current cumulatively installed US capacity of 46,919 MW, following on from a bumper 6.8 GW in 2011. Wind-generated electricity is on a correspondingly rapid rise. Last year saw a 27% rise in electricity generated by wind, accounting for 3% of total US generation, according to recent figures from the Energy Information Agency (EIA).

But the market is set to crash in 2013 with the expiration at the end of this year of a critical tax credit – failure to extend the PTC could cost 37,000 jobs and reduce wind investments from US$15.6 billion in 2012 to US$5.5bn in 2013, industry analysts say.

Bruce Hamilton, Energy Analyst at consultants Navigant, says that installations are set to collapse to 2.4 GW in 2013 after an "artificially high" year in 2012, as wind developers race to get the blades turning on their projects.

Hamilton is the lead author on the report, Impact of the Production Tax Credit on the US Wind Market, which concludes that the PTC has an impact of an incremental 5-6 GW of installed capacity during each year of the extension.

The PTC offers investors a fixed return of US$0.022/kWh, typically over 20 years, and has been the main driver for the industry for two decades. The only remaining incentive would be the Renewable Portfolio Standard (RPS), which sets targets for green electricity generation – but only in 30 states.

"RPS would keep the industry going without the PTC at a much lower rate," Hamilton says. "The wind industry could stand on its own two feet, but it would limp along."

Political hurdles

The recent failure to extend the PTC introduced by Senator Debbie Stabenow, a Michigan Democrat, followed another attempt in February to attach a PTC amendment to the payroll tax extension.

Many more attempts to hitch the PTC extension to legislation progressing through Congress will most likely go to the wall before politicians turn their full attention to energy tax credit extensions.

Rob Gramlich, Senior Vice President for Public Policy at the American Wind Energy Association (AWEA), says: "It's not that the PTC has been singled out – it's just in a category of issues that haven't been taken up yet. A couple of dozen business tax credits historically always move together in December. We're working hard to get it much earlier in the year than it's been done in the past."

The bipartisan passage of the payroll tax bill and the likely passage of the highway re-authorisation bill have raised hopes that the political impasse of last year has eased.

"In an environment where no substantive legislation has been passed for about a year; if we get two significant pieces passed through within two months, we may have a little window of legislative activity that could open possibilities now the level of gridlock has decreased," Gramlich says.

One major piece of bipartisan legislation introduced by House Representatives Dave Reichert, a Washington Republican, and Earl Blumenauer, an Oregon Democrat, originally sought to grant a four-year extension to the PTC for wind energy. But a year-long extension at the 11th hour, or even next year, now seems a more likely outcome.

"That's the way it's always been. We've seen this movie before," Gramlich says. "We're optimistic the PTC will be passed but we can't guarantee when. We just have to keep looking at each legislative vehicle as it is put together to see what the opportunity looks like."

Senator Stabenow's PTC amendment to a transport bill failed to pass the Senate because of an additional inclusion of the 1603 cash grant programme for clean energy projects. At the same time, the Republicans in Congress have spent the past year battling with Democrats and the Obama Administration over spending-cuts to reduce the US deficit of US$15.5 trillion.

Election talk

But it's not just about the economy. Elections in November are a distraction for policy makers. Republicans have enthusiastically adopted subsidies to the renewables industry as evidence of Federal profligacy, while electricity costs from conventional sources are being kept low thanks to record-low gas prices.

“Election year is probably the biggest factor [in the PTC extension] given everyone wants to be seen as being a budget hawk and [they say we] can't afford all these green extensions to power,” Navigant's Hamilton says.

For example Senator Lamar Alexander, a Tennessee Republican, has called on Congress to end subsidies to ‘Big Wind’, which he describes as “a big loophole for the rich and for the investment bankers”:

“And what do we get for these billions of dollars in subsidies?,” he asked Congress earlier this year. “A puny amount of unreliable electricity which arrives disproportionately at night when we don't need it.”

By 2017, American taxpayers would have supported the wind industry to the tune of US$27bn over 10 years, he says.

But Hamilton says that the return on investment from the PTC works out at an 80% return on investment through increased investment and tax revenues.

Industry crash

Signs of a U.S. wind industry crash are already being felt from coast to coast with wind turbine orders for 2013 already drying up.

Vestas, one of the world's largest turbine manufacturers, has made large investments in R&D and manufacturing facilities in the U.S. in recent years. But late last year, the company announced €150m in global cost-savings. Around 182 jobs have been cut from its U.S. workforce this year, and ceo Ditlev Engel has said a further 1600 jobs in the U.S. could be cut if the PTC is not extended.

Vestas will make a decision on its U.S. manufacturing facilities later in the year based on the status of the PTC, and the outlook for markets served by U.S. factories.

Mitsubishi Heavy Industries cited PTC uncertainty when in March it put the brakes on its plans to build an Arkansas manufacturing plant, which promised 330 jobs.

Wind developers are equally struggling. Iberdrola Renewables, which has invested US$6bn in the U.S. over the past three years, has downed tools on projects after 2012, and is looking to other markets for growth.

Iberdrola, a subsidiary of the Spanish wind developer, employs 850 people in the U.S. and laid off 50 employees two months ago.

“As a global and diverse company, we are in a position to pursue the best development opportunities almost anywhere in the world,” a spokesman says. “We have had to make difficult decisions on where to allocate capital, and the U.S. does not appear as attractive in the near term as it has been over the last decade.

“Although we remain optimistic that the PTC will pass this year, its absence would drive that investment and job creation overseas, where there are more certain regulatory environments.”
Still promising

Despite the problems, the U.S. wind market is still huge, with great promise for manufacturers, developers and investors.

Wind energy is the largest source of non-hydro renewables in the U.S. And although U.S. installed capacity has reached 46 GW, it is still less than half that of Europe's 94 GW.

There's plenty of room for growth, AWEA's Gramlich says: “The US market provides vast geographic areas for wind development and there's a lot of space left for utility grid operators to integrate a lot more wind around the country.”

Costs are also coming down dramatically, falling by one-third in the past three years, he adds:

A recent report from the Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory (NREL) analysed onshore wind energy cost trends. The report found costs of wind energy trending towards an all-time low. In locations with the best wind resources, prices are now approaching US$0.03/kWh, including Federal tax incentives. Also, over the past decade, land area suitable for projects has increased by 130%-270% due to improvements in turbine technology.

“We're confident that wind is lower cost than adding new coal fired capacity or nuclear,” Gramlich says. “It's really a question of how do you value diversity when utilities are looking largely at natural gas for their needs in the future. But they do want to incorporate some risk factor and get the fixed price hedge of a source like wind energy.”

Decreasing costs in wind technology and rising demand for clean energy are expected to create a U.S. market that will eventually stand on its own feet without Government support. But debate about when the right time to cut or phase out the PTC is, will continue beyond this year.

“Most people will agree that in the long term we need to get rid of the PTC,” Navigant's Hamilton says. “But there's certainly disagreement on how fast we get there.”

About the author: Felicity Carus previously worked on the environment desk at the UK's Guardian newspaper. She covers renewable technology and clean energy policy and finance out of San Francisco, CA., U.S.

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