EIA Sees 2015 Wind Growth Outside Tax Extension, Offering Boost For ESPS

Source: By John Siciliano, Inside EPA • Posted: Monday, December 22, 2014

Despite limited impact from the eleventh-hour passage of a vital tax credit extension for wind energy through the end of 2014, the Energy Information Administration (EIA) says wind projects will surge in the fourth quarter and through 2015, which could help states seeking to use more renewables to meet EPA’s climate rule targets.

Dec. 18 EIA analysis says that because the Senate extended the production tax credit (PTC) on Dec. 16 only through the end of the year, “this extension is unlikely to spur significant additional wind development activity beyond what installers had already planned.”

But a change in the eligibility of wind projects under the PTC made in a 2013 extension measure — and clarified in recent months by the administration — could be the reason for the surprising projected jump in wind farm construction, which EIA says remained flat for nearly 2 years.

“Previously, the PTC had been extended on an incremental, short-term basis and had been allowed to lapse or nearly lapse on several occasions,” says EIA, the Department of Energy’s analysis wing. “Before 2013, the tax credit legislation specified that projects must be in service by the end of the year. The 2013 and 2014 extensions were different, as they required that projects must have been under construction by the end of the year” to be eligible for the tax credit.

The wind energy industry says the PTC is an important near-term policy driver for wind energy development, even as more long-term policies like EPA’s existing source performance standards (ESPS) climate rule are put into place. The administration continues to advocate for a permanent wind credit as the ultimate solution to give the wind industry certainty, especially given that doubling the amount of renewable energy is a key part of the president’s Climate Action Plan that also includes the ESPS.

The wind industry is also urging EPA to include larger wind energy growth projections in the final ESPS, which would increase the stringency of state-specific greenhouse gas (GHG) reduction targets. The new EIA forecast could be used to support such a change, or to at least illustrate that more renewables are expected to become available for states to comply.

States under the proposed ESPS must submit compliance plans to EPA beginning in 2016. The ESPS sets state targets using four “building blocks” that include renewable energy development along with heat-rate improvements at coal plants, energy efficiency and increased use of existing gas plants.

The EIA news brief says the Internal Revenue Service (IRS) was directed to provide wind energy developers with guidance to help clarify eligibility criteria under the modified PTC, which required wind projects to be under construction by the end of 2013 to qualify for the credit. The guidance had the effect of spurring growth by providing greater certainty to developers.

The guidance helped clarify that “[p]rojects could meet the construction deadline by either starting physical work or through the [credit’s] safe harbor clause, which required them to spend at least 5% of the project cost prior to the end of 2013 and maintain continuous progress thereafter,” according to EIA.

“Under the 2013 extension and subsequent IRS guidance, wind projects attempting to qualify for the PTC through this safe harbor provision had an incentive to enter service prior to the end of 2015 in order to ensure PTC eligibility.”

EIA further explains that the changes in the eligibility requirements, although welcomed, did result in a drop in wind projects, which plummeted in 2013 from a high of 13 gigawatts (GW) in 2012 to less than 1 GW.

“Capacity additions in the first three quarters of 2014 have totaled less than 2 GW, but project developers have reported to EIA an additional 3 GW of expected capacity additions for the fourth quarter. They have also reported to EIA an additional 11 GW of wind projects with expected completion dates in 2015, primarily in states such as Texas, Oklahoma, Illinois, Iowa, and Minnesota.”