CRS report outlines PTC phaseout allowing wind, gas parity

Source: Nick Juliano, E&E reporter • Posted: Wednesday, January 8, 2014

The renewable energy production tax credit is gone for now and, even if it is reinstated this year, there are growing calls to replace the current system of year-to-year extensions with a more definitive path meant to phase out the credit altogether.

To that end, the Congressional Research Service last month produced a report weighing the pros and cons of various phaseout proposals that have been floating around Capitol Hill and in energy policy circles over the last few years.

Most notably, CRS appears to break new ground in trying to design a phaseout model that could best achieve the underlying goal of keeping the credit in place just long enough to allow new wind farms to match the electricity price offered by new natural gas-fired power plants, a key competitor. Wind and gas were No. 1 and No. 2, respectively, in adding new electric capacity in the United States last year, although the ongoing shale boom has generally given gas plants a cost advantage.

The CRS report posits a “market-linked phase-out” that would consider numerous variables to calculate the value of the PTC, including the levelized cost of electricity from wind and gas projects and a goal for reducing capital costs in the wind industry.

Using some real-world estimates of future energy prices and other purely hypothetical variables — such as assuming wind industry capital expenditures fall 5 or 10 percent per year — CRS said such a proposal could lead to the PTC’s end by 2017 or 2019. However, the report is quick to note existing uncertainties inherent in the idea, including how quickly the wind expenditures could fall, and numerous implementation challenges inherent in the complex proposal and the regionally varied nature of the energy business.

The report also discusses a six-year phaseout floated last year by the American Wind Energy Association in the context of comprehensive tax reform, as well as a straightforward “linear” phaseout that would reduce the value of the PTC by 20 percent per year over five years. It also notes that the then-existing PTC law had a built-in phaseout that would have been triggered when wind electricity costs hit a certain point but says that the price for wind power has stayed so far below that level that the provision would likely never be triggered if the PTC were to win a permanent extension.

The Dec. 20 report was released to members of Congress and their aides just before the PTC expired at the end of last year. CRS does not make its reports public.

Though the PTC has expired, prominent senators such as Ron Wyden (D-Ore.), who is poised to take control of the Finance Committee, have said it and other temporary tax breaks should be extended soon. House Republicans, meanwhile, have shown little enthusiasm for quickly addressing these “tax extenders.”

Still, the wind industry is not in panic mode yet. A tweak to the law enacted last January allowed wind developers to merely start working on projects by the end of the year to remain eligible for the credit, so industry officials expect plenty of activity at least for the next several months (Greenwire, Dec. 19, 2013).