Pressed for specifics, wind energy group proposes 6-year PTC phaseout

Source: Nick Juliano, E&E reporter • Posted: Thursday, December 13, 2012

The wind industry today is calling for its key tax credit to be phased out over the next six years — putting detail for the first time to its long-standing position that the credit will not be needed forever.

The proposal from the American Wind Energy Association, outlined in a letter to lawmakers, could aid efforts to extend the wind production tax credit beyond its scheduled expiration at the end of this year. AWEA has long said it would not need the credit forever but was facing growing calls from Capitol Hill to spell out exactly what that meant. Until last night the group had not precisely detailed how much longer it would be needed or how a phaseout could be structured.

AWEA’s proposal maintains its existing call for an immediate extension of the credit through the end of 2013 with a modification endorsed by the Senate Finance Committee to expand the credit’s eligibility (E&E Daily, Dec. 10). The phaseout proposal was presented as an idea to be considered in the context of longer-term tax reform Congress is expected to embark on next year, an area that also received some attention from a key Senate subcommittee yesterday.

Beyond next year, AWEA envisions the 2.2-cents-per-kilowatt-hour credit to be phased down by 10 percent per year for the next five years and ended after 2019. So developers would receive 90 percent of the credit’s value for projects placed in service in 2014, 80 percent in 2015, 70 percent in 2016 and 60 percent in 2017 and 2018. No projects completed in 2019 and beyond would be eligible for the credit, which developers receive for the first 10 years of a project’s operation.

The proposal came out after months of internal economic analysis and negotiation among AWEA member companies.

“We began this process in order to be a part of the solution on our nation’s fiscal challenges, while creating needed stability for wind industry development, both of which are concerns for our industry. We wanted to take this head-on, as part of our patriotic duty as well as our duty to the industry,” AWEA President and CEO Denise Bode said in a statement.

The analysis indicated that the phaseout “would sustain a minimally viable industry, able to continue achieving cost reductions,” according to the letter from Bode to chairmen and ranking members of the House and Senate tax-writing committees and leadership in both chambers.

“In coordination with any phase down of the credit, we would urge Congress to consider additional policy mechanisms to encourage a diverse portfolio that includes renewable energy,” Bode wrote. “With the policy certainty that accompanies a stable extension, the industry believes it can achieve the greater economies of scale and technology improvements that it needs to become cost competitive without the PTC.”

The letter did not outline any specific additional policies, but ideas that have been floated on Capitol Hill and in energy policy circles include allowing renewable energy companies to organize as master limited partnerships, which would attract more investment, or creating a national clean energy standard mandating expanded use of zero- or low-emissions sources.

An opening bid?

Yesterday’s proposal follows months of pressure that has been building on the industry to better spell out its needs for a phaseout. Congressional Republicans have long said that a detailed phaseout plan would improve the chances of winning a temporary PTC extension this year (E&E Daily, Nov. 16).

“It’ll be easier to get that one year if those colleagues who normally don’t want to go along will see that it’s going to end someday,” Sen. Chuck Grassley (R-Iowa), a leading champion of the wind industry, said yesterday in an interview before the proposal was announced.

The six-year proposal is toward the high end of phaseout durations that had been discussed among industry, lawmakers and congressional staff. Sources familiar with those discussions have said phaseouts in a range of three to five years also have been discussed and that there was a divergence of views within the industry itself over what kind of phaseout would be viable.

Rep. Pat Tiberi (R-Ohio) has been a key player in negotiations over whether to extend the PTC and other temporary tax credits. He chairs the Ways and Means Subcommittee on Select Revenue Measures, whose jurisdiction includes the PTC.

Tiberi said industry representatives had suggested to him a five-year phaseout, but he said in an interview yesterday evening that he had not studied all the details of the AWEA proposal. He planned to meet with industry representatives later in the evening.

He suggested that the six-year proposal could be seen as an opening bid from the industry that gives wind supporters room to accept a shorter horizon in negotiations.

“I would say that’s the best way to look at it,” Tiberi told reporters. “I’m not sure that is the way that everyone is looking at it, but if I had to put a good face on it, that’s how I would spin it.”

On the broader negotiations around whether the PTC could be included in a year-end “fiscal cliff” package, Tiberi stressed that there has been “no progress on anything — underline, bold — on anything.”

The battle ahead

By setting up its proposal for the broader, comprehensive tax reform debate, AWEA joins a growing cadre of lawmakers and stakeholders getting ready for what could be a nearly all-consuming battle in the next Congress.

“The wind industry recognizes that our country is facing significant fiscal challenges and is supportive of all energy technology incentives being reviewed and even phased down when Congress considers tax reform,” Bode wrote in the letter. “However, the PTC has supported the wind industry in its efforts to significantly reduce the cost of producing electricity, and its continued availability for a reasonable period of time will allow the industry to invest in the cost-saving technologies required to finish the job.”

Sen. Jeff Bingaman (D-N.M.) yesterday convened a hearing in a Senate Finance subcommittee he leads to examine the role of tax incentives for energy efficiency in the tax reform debate. Bingaman, chairman of the Energy, Natural Resources and Infrastructure Subcommittee, was touting legislation he has co-sponsored with Sen. Olympia Snowe (R-Maine) to boost incentives for efficiency upgrades in industrial, commercial and residential buildings and examining existing tax breaks to promote energy efficiency.

As has been the case for wind, phasing out the efficiency and other tax breaks garnered some support in the hearing.

Steve Nadel, executive director of the American Council for an Energy-Efficient Economy, suggested structuring energy-related incentives with a built-in five-year review period, a setup he compared to how agriculture policy is managed with new farm bills every five years. That would allow Congress to periodically review whether the incentives are achieving their goals and to get rid of the ones that are not.

Sen. Ron Wyden (D-Ore.), who will replace Bingaman as chairman of the Energy and Natural Resources Committee and maintain his post on Finance next year, continued to signal that the intersection of tax and energy policy will be a top priority for him in the new year.

Wyden said one “bedrock principle” for him would be to establish a “more level playing field” among various energy sources, some of which, like wind and solar, must rely on temporary credits like the PTC while other traditional sources have incentives or other deductions permanently baked into the tax code.

Sen. John Thune (R-S.D.), who has been heavily involved in the PTC debate and is a key advocate for phasing out the credit, said Congress should design incentives that avoid the on-again, off-again nature of temporary credits that have been in place while allowing the credits to phase out once the technologies they support mature. He also suggested that incentives should be technology-neutral, rather than targeted to specific sectors identified in the tax code.

“If we get into tax reform, my view is that a lot of these deductions and exclusions and incentives — however you want to characterize them — are going to be on the table for reform,” Thune told reporters after the hearing.

“Now we go through this exercise almost annually of extending these for some finite period of time, but then once you get up against it, we blow past it and you have to enact these things retroactively. But it makes it very difficult for anybody who’s looking at investing in a project to do it,” he added. “So I’m just sort of trying to get at how we might approach tax reform once we get there, with regard to all the energy incentives and tax credits.”