Wind industry betting on PTC extension

Source: By Michael Copley, SNL • Posted: Tuesday, October 20, 2015

Wind companies are continuing to plan projects that rely on the federal production tax credit, according to an industry lawyer, even though the incentive expired at the end of 2014 and there is uncertainty whether Congress will reinstate it.

Robert Stephens, a partner at Sidley Austin LLP and a member of the firm’s energy and global finance groups, said the industry seems to have worked through the pipeline of projects that were rushed into development in order to qualify for the production tax credit’s safe harbor provision, and that companies now have a “stack of deals” that are ready to go if Congress reinstates the subsidy.

“I don’t think sponsors and lenders are sizing deals right now for a no-production-tax-credit world. They’re putting things together assuming an extension, and they’ll rethink the world if the extension does not occur,” Stephens said in an interview Oct. 13. He argued that the approach is not based on “blind” or “falsely-placed optimism.”

“They’re planning for success on this,” he said. “Why put things together assuming that there’s going to be a, more disastrous is maybe too much, but a very difficult situation with the industry when there’s a decent chance there will be an extension?”

If developers are betting wrong, they will have to mothball projects, Stephens added. But if they do not take the gamble, then “you lose out on all the upside that other people who planned for a better environment can execute on.”

That calculation illustrates the pressure industry lobbyists are under to win over lawmakers who have started challenging tax policy that historically has had bipartisan support.

In April, Republican Reps. Kenny Marchant of Texas and Mike Pompeo of Kansas introduced a bill that would eliminate the production tax credit and use the savings to lower corporate tax rates. In the Senate, Oklahoma Republican James Lankford on Oct. 7 introduced a bill to phase out the credit by 2026.

At the time Marchant and Pompeo introduced their legislation, Congressional observers said the effort stood little chance of succeeding. But such bills clearly “show there is a sentiment against the PTC,” Joe Mikrut of Capitol Tax Partners said Oct. 14 at the American Wind Energy Association’s Wind Energy Finance and Investment Seminar in New York City.

“We knew that going into this fall that the House was going to be a challenge, and we were not going to see them initiating a PTC extension. So the bulkhead is the Senate,” Jim Reilly, senior vice president of legislative affairs at AWEA, said at the conference.

The Senate Finance Committee in July voted to reinstate the PTC, which credits developers $23 per MWh that a wind farm generates, as part of a larger tax-extenders bill. However, House Republicans would rather select a few of the expired tax breaks and make them permanent. The production tax credit has not been one of them.

Mikrut said the industry will have three chances before the end of 2015 to try to reinstate the PTC: later in October, when the highway trust fund expires; in November, when the federal government hits the debt ceiling; or in December, when a continuing resolution for government funding expires. The idea is to “find some must-do legislation, attach extenders to that” and then try to win enough support to pass it, he said.

AWEA is warning lawmakers that there will be dramatic job losses if the credit is not reinstated and construction grinds to a halt. Among developers, though, there does not seem to be a sense of panic.

“There’ll be a lot of retrenching, but I don’t believe, based upon some comments I heard at a conference, that it is necessarily the death of the industry if these tax credits aren’t extended,” Stephens said. Though he expects a “substantial pause while people evaluate exactly how far the economics can be stretched,” Stephens said developers are not saying, “Well, we’re done, we’re going to trim down to minimum staff and hold onto our positions until things change.”

Scott Weiss, manager of corporate development at Apex Clean Energy, said the Texas wind market, the country’s largest, does not need the production tax credit to continue growing. “I think it helps. I think the world looks very different without it. But I think wind energy in Texas would survive and still be OK,” he said Oct. 14 in New York City.

More than anything, industry participants seem to crave stability. “It’s very hard to grow an industry that’s full of nuance when the nuance keeps changing,” One Energy General Manager Jereme Kent said.