Invenergy CEO: PTC phase-down may not count for much

Source: By Karl-Erik Stromsta in New York, Globe Renewable Energy News • Posted: Tuesday, June 28, 2016

The idea behind the PTC phase-out was to spark a near-term investment boom without simultaneously creating a demand cliff. Developers with advanced projects would rush to qualify for the full PTC in 2016, but earlier-stage projects would still be able to secure a substantial fraction of the PTC over the coming few years – or so the thinking went.

But major wind developers are now questioning whether many projects will get built based on reduced PTC levels after all, given the intensely competitive landscape in the US power sector today.

“Certainly people will try to make all these decisions this year so their projects will qualify for the 100% [PTC],” Invenergy’s Polsky said, speaking Wednesday at ACORE’s Renewable Energy Finance Forum in New York.

“What’s really interesting is what will happen next year or the year after next, and whether those projects will have any value,” he says. “It’s a big question mark, whether the 80% and 60% tax credit will have any meaning at all.”

Chicago-based Invenergy is the largest privately held wind developer in the US, and the sixth largest owner of US wind capacity overall.

The late-2015 PTC extension and recent guidance from the Internal Revenue Service mean that any wind project that begins construction in 2016 has until the end of 2020 to reach completion while still qualifying for the full PTC – currently worth $23/MWh for 10 years.

Rather than entering physical construction, developers also have the option of ‘safe harboring’ a project by incurring 5% of the total cost and taking delivery of the components purchased, in which case they still have four years for the build-out.

The four-year window applies to projects that enter construction in future years, but such projects will only receive a fraction of the full PTC: 80% for those that qualify in 2017, 60% in 2018, and 40% in 2019.

Building a US wind farm with 80% or less of the PTC “would be difficult”, Polsky says. As long as there are enough projects that have qualified for the full PTC, “there will be no projects built at 60% or 80%.”

Patrick Woodson, chairman of E.ON North America, agrees that it will be difficult for most wind farms to be economically viable with anything less than the full PTC. “It’s going to be enormously challenging to build projects beyond this [six-month] window,” he says.

“You can’t keep taking tax credits away, can’t have these tremendously low power prices, can’t lose 20% or more of the PTC, and still expect that we’re going to be able to continue,” Woodson says. “Something’s got to give.”

Given those realities, many developers with earlier-stage projects can be expected to try to safe harbor equipment this year. That rush to order equipment will create a new set of challenges for both the developers themselves and the US wind supply chain.

The four-year window to build projects – compared to the two years on offer before the recent IRS guidance – creates a different dynamic for developers, says Jonathan Stark, managing director for origination at GE Energy Financial Services.

Project sponsors are “working through this though process right now”, Stark says. “What’s the best and most flexible method to safe harbor projects?”

“Do you go put foundations in at projects that might not be developed for four more years? Do you buy equipment – and which equipment do you buy?”

“You’re going to see an interesting dynamic over the next four years,” Stark says.