Renewed Tax Credit Buoys Wind-Power Projects

Source: By DIANE CARDWELL, New York Times • Posted: Friday, March 22, 2013

After a deep slump at the end of last year, the wind industry is picking up.

First Wind, a Boston-based developer and operator that was sitting on a pile of stalled projects with the potential to power roughly 300,000 homes, now expects to go forward with many of them.

Broadwind, an energy manufacturing and services company, based in Cicero, Ill., recently announced winning two new orders for wind towers worth $62 million. At least nine utilities, including Xcel Energy and a subsidiary of American Electric Power, are exploring new wind projects.

“Deals are getting signed; people are ramping up their production facilities again,” said Peter C. Duprey, chief executive of Broadwind. “The whole industry went through either a shutdown or idling at the end of last year and are now quickly trying to gear back up again.”

The rush to development is in large part because of Congress. Lawmakers had allowed a popular incentive, known as the production tax credit, to lapse at the end of last year, but then renewed it in January. They also changed the requirement so that projects only have to be under construction by the end of the year to qualify, rather than fully operational, as had traditionally been the case.

“We are now back on the treadmill trying to get as much of our portfolio qualified for the P.T.C. by the end of this year,” said Paul J. Gaynor, First Wind’s chief executive, referring to the credit. Without the renewal, he said, “I think we would have had zero megawatts to develop.”

Projects take such a long time to finish, industry executives and analysts say, that development and manufacturing will continue to pick up through this year and next, potentially spilling over into 2015.

Indeed, the flurry of activity may represent more of a shuffle than an expansion. Developers are mainly dusting off projects they already had in the works, rather than seeking out new business, while others are trying to sell off unfinished projects, experts and executives said.

“Some people are taking the view that it’s a good time to buy early prospects and other people are saying it’s a good time to get rid of early prospects,” said Michael Skelly, president of Clean Line Energy Partners, which is developing high-voltage transmission lines for wind farms. “There’s some churn going on there, but it’s not really new projects being undertaken.”

Beyond the next year or so, the industry’s future remains in doubt, given the uncertainty over whether Congress will again extend the credit as part of an 11th-hour budget agreement or take up its purpose and ultimate fate as part of a broader corporate tax overhaul.

“Are you going to have corporate tax reform or not?” said Senator Charles E. Grassley, the Iowa Republican who wrote the original legislation creating the credit. “I don’t know.”

Over the last decade, with a few exceptions, the wind industry has steadily grown, attracting on average nearly $18 billion a year in private investment since 2008, according to the industry’s main trade group, American Wind Energy Association.

But its fortunes have been shackled to the credit as Congress has periodically allowed it to lapse and then renewed it. Private investment was sharply up last year, jumping to $25.2 billion from $14.3 billion in 2011, driven in part by the rush to complete projects in time to qualify for the incentive.

The tax credit is 2.2 cents a kilowatt-hour for electricity produced over the farm’s first 10 years of operation, a subsidy that can bring the price of wind power close to that of conventional fuels.

The trade group has determined that the industry could survive if the credit were phased out by the end of 2018. The White House, however, has pushed to make it permanent and refundable. But antipathy among many Republicans toward subsidies for alternative energy could squelch efforts to extend it past the end of this year, creating more uncertainty in the industry.

“If you’re a wind developer looking to invest long term in wind, you have to think about whether the P.T.C. is going to be there next year, and that’s up in the air right now,” said Robert N. Freedman, a lawyer who helps lead the sustainable development group at Shearman & Sterling.

There are other pressures, too, he said. Demand for new power plants is relatively low because of a sluggish economy; natural gas is cheaper and, especially in the West, many utilities are choosing to meet state renewable energy mandates with solar.

At the renewable energy development arm of Duke Energy, for instance, the volume of wind development is expected to be significantly lower than last year, even with the credit in place. By contrast, the solar business, though smaller, could triple.

“P.T.C. gets a lot of headlines because of the political dynamic,” said Greg Wolf, president of Duke Energy Renewables, “but those other market and operational dynamics are going to be ultimately equally as important.”