- Wind Power
- US Wind Market
- Production Tax Credit
- Investment Tax Credit
The Wind Industry That Didn't Want Tax Credits Got Them Anyway
In 2015, the US wind power industry said it no longer needed tax credits. Four years later, that has changed.
Since 2016, it has been common knowledge that the Production Tax Credit (PTC) for wind energy was being phased out. Yet when congress agreed to a budget deal in December 2019, it included a PTC extension. Wind received a modified 1-year extension that provides 60% ($15/MWh) of the PTC’s full value ($24/MWh) for the first 10 years of a wind project’s operation. This is for projects that begin construction in 2020, and wind project developers have 4 years to build. The extension also includes a similarly valued Investment Tax Credit (ITC).
Is It the Wind Industry or Tax Equity that Can’t Quit the Tax Breaks?
The bill was a must-pass package finalized before the December recess, and many special interest groups attached their particular legislative priorities. Influential banks were likely behind the lobbying effort for the extension. Since many are tax equity investors they can better monetize the tax breaks, so they take equity ownership in the majority of wind plants operational in the US. It may be these tax equity investors (rather than the broader wind industry) who have more difficulty saying goodbye to the tax credits.
As an analyst covering the wind industry, I welcome most policies that bolster wind, including this extension. But it does appear to be a reversal of sorts. As recently as the middle of 2019, many top industry stakeholders were welcoming a phase out of the PTC. Jose Antonio Miranda, CEO for the turbine supplier Siemens Gamesa, stated, “I think phasing down the PTC and ITC at a point where we don’t need them anymore is the right choice, the right decision.”
In 2015, the industry was tired of the business cycle where the credits were renewed in 1- or 2-year increments, resulting in an inconsistent business environment. Wind plants were becoming increasingly cost-competitive, so the industry lobbied congress on a compromise deal to let the PTC (and ITC) phaseout begin in 2016, with a structure that slowly reduced the value of the credit through 2019. I covered the details of the value levels in a previous blog, found here.
A Second Wind Bubble on the Horizon
The new extension for 2020 pushes the tax credit phaseout further out. The final window for the lowest PTC value of 40% ends in 2023. The result of this new 60% extension is that 2024 will see a second wind installation bubble, which is expected to grow from 4 GW in 2023 to over 10 GW in 2024. This creates an odd situation where wind plants that started construction in 2019 at 40% PTC value will get less tax credit value than wind plants that start in 2020 receiving the 60%. Some savvy developers may choose to abandon 2019 projects and restart in 2020 to receive the higher level.
At the end of the day, what gets more wind turbines installed is to be applauded, since it helps combat climate change. However, at some point the industry will have to kick the tax credit habit and prove to critics that wind can compete on its merits in the marketplace.