Installations plummet but construction starts soar as policy uncertainty persists — AWEA

Source: Nick Juliano and Katherine Ling, E&E reporters • Posted: Friday, January 31, 2014

Installation of new wind turbines in the United States fell more than 90 percent last year, a result industry officials blamed on continued uncertainty surrounding their primary federal tax incentive.

Still, the American Wind Energy Association reported that its members were on track to rebound this year as a record number of wind farms are currently being built. The pattern is true to form for the wind industry, which is heavily reliant on the temporary production tax credit (PTC), but industry officials say the boom-and-bust cycle threatens to repeat itself without Congress charting a more stable course.

The credit was extended for a year in January 2013, but because developers were unsure of its fate throughout 2012, few orders were placed for new turbines and development activity had largely ground to a halt by the end of that year. Similar drop-offs in activity followed PTC expirations in 2000, 2002 and 2004.

New wind generation capacity fell to 1,084 megawatts last year, compared with a high 13,131 MW of new capacity installed in 2012, according to AWEA’s fourth-quarter report released this afternoon.

The good news, AWEA said, is more than 12,000 MW is currently under construction and slated to come online in the next year or so. More than 90 percent of those projects started construction activity in the fourth quarter, according to AWEA, as developers raced to get their projects underway before the PTC expired.

A tweak written into the law last year allows the start of construction to trigger eligibility for the PTC; developers also can secure “safe harbor” status by spending 5 percent of a project’s total costs. Previously, projects had to be in service to qualify.

“The amount of ‘under construction’ we have going into ’14 is the largest amount of construction activity that we’ve ever seen,” Liz Salerno, AWEA’s chief economist, said in an interview yesterday.

The industry’s figure does not count projects that have safe harbored but not yet started physical construction, which could account for additional installations in the coming years. For example, Salerno said there were at least 5,000 MW worth of projects for which utilities have signed long-term power purchase agreements with developers but construction has yet to begin.

Looking forward, the industry hopes to persuade Congress to reinstate the PTC sometime this year, likely along with a package of “tax extenders” that would replace dozens of other expired, temporary tax credits. Sen. Ron Wyden (D-Ore.), who is expected to soon become chairman of the Senate Finance Committee, has said he would like to move quickly on such a package, but House Republicans have shown little such enthusiasm.

AWEA CEO Tom Kiernan said that while the path forward and legislative vehicle for extending the tax credits was not concrete yet, he and other leaders of renewable groups plan to meet with Wyden in the next week or so and ideally would like the PTC extended by midyear if not sooner.

“The industry is rapidly picking back up. Why? Because the PTC is successful policy. The PTC as a tax credit is more than made up for by increases in taxes and local activity,” Kiernan said at a press event on the report earlier today.

“The highest priority in 2014 is get the PTC and [investment tax credit] extended. We have to get it extended so we avoid the boom-bust cycle one more time,” he said. “Investors are going to put their money elsewhere until we get this PTC extended.”

In his meeting with Wyden and other policymakers, Kiernan said he would highlight the jobs and economic benefits of the industry, as well as wind’s geographic diversity, environmental benefits and the continued reduction in wind energy costs “that can continue in a more stable environment.”

Advances in wind technology have dropped costs 43 percent in the last four years, and about 80 percent of wind installations are located in Republican territory, according to AWEA. There are projects under construction in more than 20 states, with 7,000 MW in Texas alone, according to the report. Other top states for construction were Iowa, North Dakota, Michigan and New Mexico, although AWEA said current underperforming states like South Dakota, Nebraska and Missouri are hotbeds for new contracts.

Jaime Steve, director of government affairs at Pattern Energy, a renewables company, said at the event that in addition to the extension, developers will also seek a slight change in the tax credit to make it more “usable.”

Steve said they are seeking to reduce the costs of selling the tax credits to others but are not seeking a refundable tax credit policy. Many developers do not have the tax liability to take advantage of the tax credits, so they often must sell them at a price lower than face value in addition to the transaction legal fees.

Along with the PTC, Kiernan said AWEA will also be working on state-level issues, transmission needs and facilitating the siting process, and will continue to work on improving wind’s environmental impact, including bird losses — which he noted at least for eagles accounted for 2 percent of losses.