Another Boom-Bust Cycle? Wind Installations Surge In Anticipation of Tax Credit Expiration

There’s a major surge of project development underway in the American wind industry. But it’s not happening for the most positive reason.

With the expiration of two major federal incentives on the horizon, wind developers are pushing to build projects as quickly as possible to qualify for them. The rush has brought construction to levels not seen since 2009. According to the American Wind Energy Association (AWEA), there are already more than 7.3 GW of projects under development in the U.S., up from only 5.1 GW completed in 2010.

The reason for the increased activity is two-fold. Much of the late-stage activity has been spurred by the Treasury Grant Program, an incentive that allows developers to take a 30% cash grant rather than a tax credit. That program will expire at the end of this year. That leaves a 12-month window for developers to take advantage of the Production Tax Credit, a core tax incentive for the industry that will expire at the end of 2012. The rush to qualify for the incentives is causing a spike in activity that will carry over into next year.

“We are certainly seeing a boom right now, driven by the need to qualify for these programs,” says Matt Kaplan, a wind analyst with IHS Emerging Energy Research. “Next year could be one of the strongest years on record for the wind industry. But then we’ll see a very drastic drop in installations in 2013.”

The boom leading up to an expiration of the credit may be good for a short-term increase in projects, but it doesn’t provide much consistency in the market. In years when the PTC has expired (see chart above), installations in the next year have dropped by between 73% and 93%. AWEA says that an expiration this time around could be just as drastic.

A lot has changed since 2000, 2002, and 2004, however. With higher-quality equipment, more cost-competitive technologies and a greater number of state-level renewable energy targets, will the industry really see a similar decrease in project activity?

The drop-off won’t be 100% as the above chart suggests. IHS’s Kaplan says that installations could muddle along at around 2-3 GW over the next couple of years. That’s a higher level of project activity than in previous years when the PTC expired. But because the industry is so much bigger today, it also means that more jobs will be impacted.

“There are a lot of jobs at stake. There is a lot of investment that has gone into this industry since the last time this happened. We think this is going to have a pretty significant impact,” says Kaplan. AWEA says that manufacturers are already seeing a decrease in orders for delivery beyond 2012.

There are a few different factors that could contribute to the drop-off in wind installations in 2013. Firstly, low natural gas prices make it very difficult to sell wind electricity on the merchant market in regions developing a lot of gas. At the same time, many states with renewable energy targets are coming close to meeting their goals. That makes it harder to sign long-term contracts with utilities, particularly if there’s no PTC to allow developers to compete with cheap gas.

“That might make for a deadly combination,” says Kaplan.

The last couple of times the industry has approached the PTC deadline, Congress extended the credit at the last minute. But with conservative members of Congress vowing to slash renewable energy spending, the likelihood of getting an extension before the end of next year is becoming increasingly unlikely. In an interview with Climate Progress earlier this month, Senate Majority Harry Reid explained that he is “hopeful, but not confident we can get them passed.”

Yet again, the wind industry is a hostage to politics.

4 Responses to Another Boom-Bust Cycle? Wind Installations Surge In Anticipation of Tax Credit Expiration

  1. Sasparilla says:

    Over the next couple of years we get to watch a slow motion train wreck of our wind energy sector, courtesy of the Republican party (presumably solar will get walloped as well when those incentives expire).

    The next years, as the supports for green energy expire, and the industries get eviscerated here in the US, are going to be tough to live though and watch.

    At this point, with the way the Republican party is, I’m not sure the Dems could get federal support for renewable energy these days extended even if they were back to where they were in 2009 (control of House, Senate with 60 Dems and Presidency) – I get the feeling renewable energy is now viewed by GOP leadership on the same level as climate change these days (radioactive and no ability to vote for it without ensuring a direct primary challenge courtesy of funding from the Koch bros front groups).

    I hope I’m wrong on that feeling, but it seems like the GOP has declared war on renewable energy just like it did previously on climate change.

  2. The “Treasury Grant Program” is only required because of the massive indirect subsidy for fossil fuel power.
    Just cut those incentives for fossil power, Good for the budget too.

  3. Doug Bostrom says:

    Based on typical plant capacities, 2010 alone saw the equivalent of 3-5 nuclear plants brought online in wind generation capacity. I doubt we could even build so many nuclear plants in a year even if all hypothetical barriers were knocked down and we were prepared to unleash astronomical amounts of money to do the work.

    It seems obvious that tax incentives for wind are more productive than offering the same dollars for nuclear installations; a dollar of incentive for wind buys way more capacity in far less time.

  4. The production tax credit has been around on-and-off since 1999. Wind is one of the most competitive, if not the most competitive, forms of renewable energy. Question: How long does this incentive need to be around before the industry can stand on its own? I’m all for using the PTC mechanism to stimulate development and deployment, but for how long? When do we wean industry from this incentive?

    I don’t know the answer, but I think the question needs to be part of the discussion. People may be more willing to accept incentives when they have a sense of when, how and under what conditions they will be phased out.