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Tax credit hopes still high in America -- Senators force removal of PTC from energy bill passed last month

The US wind industry remains confident Congress will not let the $0.02/kWh federal production tax credit (PTC) for wind power lapse, even after a disappointing December that saw efforts to extend the PTC past the end of this year dashed by senators voting under threat of a presidential veto. The same vote also killed off hopes for implementation of a minimum national standard for the proportion of renewables in US electricity supplies. "It was just a very tough dynamic for us," says Gregory Wetstone, senior director of governmental and public affairs at the American Wind Energy Association (AWEA).

Hopes had been high that the latest attempt to chart a new energy course for the US would be good for wind after the House of Representatives passed a comprehensive bill on December 6 that included both a four-year PTC extension and a requirement that utilities generate or buy 15% of their power from renewable sources by 2020. But when the bill went to the Senate for its approval, things started to unravel. The bill's mostly Republican opponents, backed by a White House veto threat, objected to the 15% renewable energy standard (RES) and a $22 billion tax package that would have repealed several oil industry tax breaks and redirected the money to pay for the PTC extension, knocked back to two years in a Senate amendment, and other renewable energy initiatives. Eventually, they forced removal of both.

Cross currents

"I think in many ways we were caught as part of larger, very heated debate that became very partisan. Certainly the vote on the tax package did not reflect where members are on the production tax credit issue. That was a much bigger vote, bigger in the sense of a much larger pot of money was in play and there were all kinds of cross currents that in the end were not helpful for us," says Wetstone. "When you look at the number of Senators we lost who are on record as strong supporters of the production tax credit, it is remarkable that we came as close as we did."

An attempt to move the bill forward with the tax package included fell short by only one vote. With the renewable energy mandate and tax package eliminated, the energy bill sailed to an easy victory in the Senate. The scaled-down legislation also won the approval of the House and was signed into law by the President.

Wetstone says he doubts the failure to extend the tax credit as part of the energy bill will have a negative impact on the US wind market, pointing out that the current PTC does not expire until the end of this year. "It is a little early to anticipate any serious financial repercussions, but clearly as the year progresses if we don't get an extension by summer then people are going to start getting very nervous. Then at that point it may be an issue," he says. "But I think there is still a lot of confidence that this is something that is going to happen and that we are not going to see this credit lapse. I think that is an expectation among investors and I don't think the action to date over this whole package has undermined that expectation. It shouldn't."

Bullish

Tim MacDonald of Meridian Clean Fuels, who advises investors on PTC investment structures, shares Wetstone's view. "We're bullish they're going to get around to extending it," he says. "The big issues are how long they are going to fund the extension. We've been living on a sequence of one or two-year extenders and they've always found a way to pay for that. When they went to a longer extension, it got harder to make the trade off."

Legislators need to act quickly, however. "There's a lot of money riding on making sure this gets extended. You're going to see people pulling back if it gets too late in the year without it," he says. "Right now people are fighting to get 2010 and 2011 [turbine] deliveries. If this thing looks like it might get truncated, that will all come to a screeching halt. And you're going to find people now are trying to finance 2009 order positions and the money for that is going to dry up. If they don't get their act together in the first quarter, it's going to get dicey," says MacDonald.

Senate Majority leader Harry Reid appeared to recognise that challenge during the energy bill debate, emphasising the need to return to the issue of renewable energy tax incentives after the holiday break. "I hope my friends on both sides of the aisle will work with us very early next year to get this done. It is extremely important," he said.

Reid got even tougher in a statement on the floor of the Senate before casting his vote for the scaled-down version of the bill. "If President Bush thinks we'll stop fighting to end Big Oil giveaways, so that we can invest more in clean-energy innovation, he is mistaken. And if Senate Republicans think this is the last they'll hear of the renewable electricity standard, they are mistaken too. Republicans may have blocked these priorities for now, but the drumbeat for change is far too loud and far too strong for them to keep blocking much longer."

Wetstone hopes the current Congress will take up the RES issue again before it adjourns for the US elections in November. "We have a lot of momentum," he says. Historically, it has been the Senate that has supported the concept of a federal standard and has actually passed RES laws three times. Until now, the House has always opposed it. "Obviously as we entered this Congress, the speculation was, can it happen in the House? The irony of it moving through the House and falling short in the Senate is an interesting one. It is worth noting that we never got a straight up or down vote on an RES in the Senate this time," says Wetstone.

The US public clearly wants action, says Wetstone, pointing to an AWEA poll released in November showing overwhelming support for a federal RES ranging from 77% among Republican voters to 92% among Democrats. "The results have been staggering in terms of the bipartisan strength of the constituency for renewable energy," he says.

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