December 17, 2014 Categories: Clean Energy

Blowing in the Wind: The Economic Realities of a Short-Term Extension of the Wind PTC

Last night the U.S. Senate approved a bill that, if signed by the President, would extend the wind production tax credit (PTC) to the end of 2014. At first glance this appears to be good news for the wind industry and for the economy. Unfortunately, the proposed PTC extension is too short term to have any real effect on wind installations this year. What the wind industry needs–and what our climate and our economy need–is a multi-year plan that will establish certainty and stability for an industry that has a history of dealing with unpredictable and inconsistent federal policy.

The PTC extension through the end of 2014 will not drive any new wind development.

In order for a wind installation to be eligible to receive PTC funds, the project must have incurred over 5% of the project cost, or have begun significant physical work before the PTC expires. In reality, the bill to extend the PTC until the end of 2014 would only spur new development IF wind developers could perform a geotechnical analysis of a wind plant site, design and engineer the project, and sign the pricing contract for construction–a process that usually takes roughly a year–in just 2 weeks.

In order to drive new wind installations, developers need a longer-term renewal of the PTC.

In 2000, 2002, and 2004 the PTC wasn’t renewed, and new wind installations subsequently dropped over 75% each time. Even the mere threat of PTC expiration caused new installations to drop in 2010, and plummet in 2013.

According to the American Wind Energy Association (AWEA), when the PTC expired in 2013 new wind installations dropped 92%, private investment in wind energy fell by $23 billion, and nearly 30,000 American jobs were lost. And AWEA is anticipating a similar loss unless the PTC is extended through 2015 – at least.

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The boom-bust nature of the PTC has been detrimental to the success of the wind industry. It is incredibly difficult to manage long-term investments and mitigate risks when the presence of a vital financing mechanism remains uncertain. As the Rocky Mountain Institute (RMI) describes, high-risk investments are faced with increased financing and borrowing costs – costs that could potentially bust an otherwise viable project.

Even with the PTC, the playing field isn’t level.  Fossil fuel companies still receive billions of dollars in federal subsidies, and they are not held accountable for the cost of their carbon pollution.

The good news is the passage of the PTC extension (albeit brief), signals there is bipartisan support for wind power.

What the wind industry now needs, and what wind industry workers deserve, is a longer-term decision on the PTC. A 5-year extension would keep the PTC in place until the Clean Power Plan goes into effect in 2020, ending the era of unlimited carbon pollution at long last.  Only such stability will provide the wind industry with enough market certainty to develop to its potential and play the role it should in ending our dependence on fossil fuels.

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