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US approves five-year PTC phase out

UNITED STATES: The US wind industry won the policy predictability it has long-sought when a five-year extension of its key support mechanism cleared the US Congress.

The US Senate and House of Representatives voted to phase out the PTC over five years
The US Senate and House of Representatives voted to phase out the PTC over five years

The extension, which will phase out the $0.023/kWh production tax credit (PTC) and alternative 30% investment tax credit (ITC), easily passed the US House of Representatives and Senate in votes on 18 December. 

Industry leaders reacted favourably to the new policy, saying it gives them the planning horizon they need. "Having PTCs for five years will allow us to make more supply commitments and build more projects, creating more jobs. It also allows us to work with the turbine vendors to lower the cost of our projects and minimise the economic impact of phasing down of the credits," said Pattern Energy CEO Mike Garland.

Make Consulting expects the multi-year extension to yield 14GW more wind power installations than previously forecast, and help the industry continue to diversify its customer base. "The extension gives the increasingly important commercial and industrial segment more time to investigate and contract wind power," research manager Luke Lewandowski said.

Bloomberg New Energy Finance (BNEF) is even more bullish. In its research, released before the extension was approved, said the five-year plan could help encourage 44GW of new wind capacity in the US between now and the end of 2021, a 76% increase over the 25GW BNEF says would likely have been built if the incentive was not renewed.

Negotiators from the US House of Representatives and Senate hammered out a $1.1 trillion spending and tax benefit package earlier this week that extends the PTC and the ITC at its current level for 2015 and 2016. The PTC eligibility period had previously expired at end 2014.

After that, the credits will be stepped down to 80% of today's value in 2017, 60% in 2018, and 40% in 2019. The rules will allow wind project to qualify for the credits as long as they start construction before the end of the period.

The multi-year extension of the PTC and ITC, championed by the Democrats, is widely seen as a trade-off for the lifting of a 40-year-old ban on crude oil exports, a Republican priority.

Many wind industry leaders have supported a long-term phase out of the credits, seeing it as bridge to 2022, when President Barack Obama's Clean Power Plan is scheduled to kick in and tilt the playing field in favour of zero-emissions sources of generation.

Tom Kiernan, CEO of the American Wind Energy Association, said the agreement will give the industry a break from the boom and bust cycles that have caused serious disruption in the market in the past.

But he also noted the later years of the phase out "provide some challenges" for the industry.

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