Tax credit extension boosts installations — EIA study

Source: Nick Juliano, E&E reporter • Posted: Thursday, May 23, 2013

The extension of a key tax credit at the beginning of this year will provide a significant boost in renewable energy installations –- especially from wind -– for the next few years, the Energy Information Administration said today.

Congress in January extended the production tax credit through the end of this year and expanded its eligibility requirements for all eligible projects, requiring they must simply begin construction by Dec. 31 rather than requiring them to be complete by the deadline.

The new law means that renewable energy installations will be 9 percent higher than they otherwise would be in 2016, with wind seeing a 34 percent boost, EIA said in an article today, drawing on data from its “Annual Energy Outlook 2013.” The increases are measured against EIA’s reference case, which did not account for the tax credit extension.

A “crucial new feature” of the PTC extension is the expanded eligibility trigger, EIA said. The Internal Revenue Service said earlier this year that companies can demonstrate compliance with the “commence construction” requirement by beginning “physical work of a significant nature” on a wind farm, geothermal plant or other eligible facility, or by spending 5 percent of the project’s projected price tag by the end of this year.

EIA projects wind developers will install about 20,000 megawatts of new capacity over the next four years, although it notes the timing of when those new projects come online remains unclear. Activity in the sector spiked at the end of 2012 –- which saw more than 13,000 MW installed -– but fell sharply over the first few months of this year.

The PTC gives wind, geothermal and closed-loop biomass developers a credit of $23 for every megawatt-hour of electricity they produce for 10 years; other technologies like closed-loop biomass, qualified hydropower and waste-to-energy get $11 per MWh.

While the extension packs a heavy short-term punch, its effects are less dramatic over the long term. According to EIA, by 2040, renewable generation would be 2 percent above base-line levels with wind seeing an increase of 17 percent.

“These results indicate that, while the short-term extension does result in a net increase in wind generating capacity, some construction that otherwise would have occurred later in the projection period is simply completed earlier to take advantage of the extended tax credit,” EIA said. “The increase in wind generation partially displaces other forms of generation in the Reference case, both renewable and nonrenewable, particularly solar, biomass, coal, and natural gas.”