4 Responses to 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.