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Life beyond the tax credit

For both investors in wind power and their loan providers, the months of Congressional toing and froing over how to extend wind's production tax credit (PTC) at the end of this year has added unwelcome uncertainty to just how much market growth they can expect in the coming months. "It has got to affect the number of deals people will bring to the market," says John Eber of JP Morgan Capital Corporation.

Many investors put their money into wind farm ownership with the primary aim of using wind's tax credit to reduce their tax bills. For each kilowatt hour of wind power production, $0.02 is knocked off an investor's existing tax burden. "We thought there'd be over $7 billion worth of tax equity deals in the market this year," says Eber. "It is possible that number is going to get a little bit smaller if we continue not to have a PTC extension. I think people are going to have to be waiting to bring anything to the market that might be a 2009 delivery until they know whether or not there is a PTC."

But amid the debate over what might happen, frustration with the nature of the PTC as a support policy for wind power is running high. Yet again PTC uncertainty threatens to stymie a market just as it is experiencing spectacular growth. "I think it is a pretty crappy way to motivate the industry," says Michael Storch of ENEL America. "We enrich a lot of attorneys because of the complexity associated with monetising the PTC. It would be wonderful to come up with something simple." Jan Paulin of California's Padoma Wind Power was equally blunt. Dependency on the PTC is "getting old" and the industry needs to devote more time lobbying for policies that capture value for wind's environmental attributes, he said. "I think this occurrence, which we have to suffer through once again, ought to make the industry at large think about the prudence of continuing to be a one-trick pony."

Better market structures

Acciona Energy's Peter Duprey would like to see the industry transition to a market-based structure that includes both a national renewable energy portfolio standard (RPS), which would require utilities to include a specified proportion of green power in their supply mix, and a cap-and-trade system for carbon emissions.

"I think we would need both. Essentially you are trying to get the utilities to diversify their energy mix, which is what the RPS does. Then the cap-and-trade equalises out some of the fossil fuel costs to the renewable energy cost," he said. "We do everything by tax incentives in the US and I think we have got to get away from that. We have got to look at how you provide a long term way to create incentives for fuel diversity in the US."

But Sam Enfield, a development consultant to Iberdrola Renewables, said a better approach might be to find ways to relax reliance on the PTC without actually getting rid of it. "With carbon policy and with RPS programs, we can put together enough values streams that we don't need to rely solely on the PTC. Whether we transition to zero or to a lower level, I think it is kind of a dynamic situation."

Paulin is confident that after the presidential election in November, which will mark the end of the current Bush administration, renewable energy will become a higher priority both for the new White House and for Congress. "I think Congress will enact something meaningful in terms of a regulatory framework for the industry. And I think that will include a federal RPS," he said. That, he added, will open up a lot more opportunities for wind.

"Unless we get a federal RPS, we are going to see people feeding on the same old places that they have been feeding on and eventually there will be overbuild in places like Texas," he said. "Eventually those markets will get saturated."

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