Turbines, customer base increase but industry wants tax certainty

Source: Nick Juliano, E&E reporter • Posted: Friday, April 12, 2013

Wind energy was the largest source of new generation installed in the United States last year, with a growing number of utilities and other purchasers signing long-term contracts for the electricity generated by new turbines, according to a report today from the industry’s primary trade group.

The American Wind Energy Association’s annual report highlights some good news for the industry but warns that continued uncertainty over the fate of its level of federal support led to a sharp drop in new project planning that buffeted the wind manufacturing sector and continues to challenge the industry.

Wind backers won a vital lifeline in January when Congress extended the production tax credit (PTC) and expanded its eligibility to projects that commence construction by the end of this year. That deal has led to a resurgence in activity among utilities, developers and manufacturers, although companies are still waiting on guidance from the Treasury Department and Internal Revenue Service detailing just how broadly the new tax credit will apply.

Because of the lead time necessary to develop a project and negotiate tax equity agreements to finance it, activity fell last year ahead of the feared expiration of the PTC. A total of $3 billion worth of tax equity deals closed last year, compared to $3.9 billion in 2011, according to the AWEA report.

Facing another looming expiration at the end of this year, the industry is still formulating its lobbying push and waiting for more indications of whether Congress will be able to complete massive tax reform legislation by the end of the year. Over the next several months, the picture should become clearer, and the industry will decide whether to lobby for inclusion of a longer-term PTC as part of a tax reform bill, push for it to be included in a narrower “tax extenders” package typically used to renew dozens of temporary tax breaks, or take another approach.

“We’ll advocate in whatever vehicle there is,” AWEA interim CEO Rob Gramlich told Greenwire in an interview last week that was embargoed until today’s report release.

AWEA has previously said the industry could survive without the PTC after 2019 if the 2.3-cent-per-kilowatt-hour credit were gradually and predictably phased down in the interim. Industry backers also continue to push for the government to allow renewable energy companies to organize as master limited partnerships, a tax structure that is popular among pipeline and fossil fuel companies.

Gramlich said there has been “a lot of talk about [MLPs] … for parity reasons, but also opening up another pool of capital that hasn’t been available.”

The industry has been able to count on broad bipartisan support in Congress, in part because wind farms or manufacturing facilities serving the industry are located in 70 percent of all congressional districts, according to the report.

In the meantime, the extension adopted in January has injected new life into an industry looking to build on a record level of installations last year. More than 13,000 megawatts of wind generation was installed last year, accounting for 42 percent of new electric capacity and vaulting wind over natural gas to provide the top source of new generation, according to the AWEA report. The industry invested $25 billion in new projects last year.

The industry saw a “quickly expanding list” of utilities purchasing wind power or developing their own wind projects, said Elizabeth Salerno, AWEA’s director of data and analysis. More than 1,400 utilities — 43 percent of the nation’s power providers — have wind on their systems through direct ownership or contracts with independent developers.

At least 74 utilities and power marketers purchased or developed new wind power last year, up from 52 in 2011, according to the report. Of the new capacity additions, 76 percent of developers had a long-term power purchase agreement and another 9 percent of projects were directly owned by utilities.

While installations surged last year, planning for new projects fell precipitously, according to the report, as demonstrated by drops in new power contracts and turbine orders, among other factors. Just 19 new power purchase agreements for future projects were signed last year, down from 39 signed in 2011.

Turbine manufacturing took an even sharper hit, with new orders placed for just 1,500 megawatts’ worth of turbines last year, down from 14,000 MW in 2011.

However, the overall job losses feared by the industry ultimately did not come to pass. The industry supported more than 80,000 jobs at the end of last year, up from 75,000 at the end of 2011. But the top-line figure obscures more acute impacts within the industry. Generally, jobs lost at manufacturing facilities were replaced by construction and installation jobs spurred by the year-end rush of activity, Salerno said.