• Wind Power
  • Federal Tax Credits
  • US Wind Market
  • Wind Turbine OEMs

Relief for Wind Plant Construction Bottleneck

Jul 07, 2020

Energy wind turbines

The wind industry has received a tax credit extension. In May 2020, the US Internal Revenue Service (IRS) gave developers that began construction of wind farms in 2016 or 2017 more time to finish the projects and qualify for Federal Tax Credits. The extension is intended to relieve a bottleneck from wind developers rushing to bring projects online before the end of 2020.

Originally, wind projects were given 4 years to be brought online to receive the full Production Tax Credit (PTC) value of $24/MWh for the first 10 years of operation. That translates to the end of 2020 for projects that started work in 2016 and the end of 2021 for wind plants that started in 2017. They will now have 5 years to finish construction without having to prove they worked continuously on the projects after construction began. The same 1-year extension also applies to geothermal, biomass, landfill gas, waste-to-energy, incremental hydroelectric, and hydrokinetic projects that started construction in 2016 or 2017.

The IRS created the extension to address widespread delays all across the wind value chain caused by the coronavirus outbreak. However, most wind projects planned for end of 2020 commissioning are on track. Guidehouse Insights expects the US wind market to exceed 12.5 GW of capacity brought online by 2020.

Congress Stretches the Tax Credit Phaseout

The May IRS announcement is the second time in less than a year that the wind industry’s tax credit phaseout has increased. The original 4-year construction window was created in 2015 when wind industry lobbyists and Congress compromised to permanently phaseout the tax credits. Then, to some surprise in the wind industry, a federal budget deal was agreed to in December 2019. Congress created a new tax credit for wind projects that begin construction in 2020, also with 4 years to build. It is a modified 1-year extension that provides 60% ($15/MWh) of the PTC’s full value ($24/MWh). Instead of one construction peak in 2020, the results of the 60% extension are that 2024 will see a second wind installation peak, likely to over 10 GW in that year. That is 9 years after the original legislative compromise in 2015 to phaseout the credits permanently.

Ultimately, these extensions are good for the wind market but go against the spirit of the original phaseout plan. There are important voices in the wind market that would like to get rid of the start-and-stop nature of tax credits. Many top industry stakeholders welcomed a phaseout of the PTC in mid-2019.

Will the Tax Credits Truly Phaseout?
Yet tax equity holds strong sway in the wind market and on Capitol Hill. Tax equity investors take majority ownership in most US wind plants because they can better monetize the tax credits compared to most developers. Lobbyists for these companies are no doubt partly behind efforts to continue stretching out wind’s path away from this subsidy. Time will tell if the credits ever truly phaseout.