US wind faces challenge to renew PTC

UNITED STATES: The US wind-energy sector is facing some strong political headwinds in its efforts to stave off the looming end of a key industry incentive, experts say.

The federal production tax credit (PTC), worth $0.022/kWh, is set to expire at the end of 2012 and wind-energy advocates have been waging an aggressive lobbying campaign to convince lawmakers to extend it for another four years.

The industry, which argued the lack of policy clarity is putting tens of thousands of jobs at risk, failed to get an extension included in the year-end legislative package cobbled together over the past week.

While Denise Bode, CEO of the American Wind Energy Association, said she is "very confident that continuing the wind manufacturing success story will be a prominent objective" when lawmakers reconvene in late January, getting Congress to act is a challenge that will only get tougher as the year wears on.

"I think the environment is not very good for decisions on anything, but particularly on the renewable-energy agenda," said Keith Martin, a Washington-based partner in the law firm Chadbourne & Parke LLP.

Pressure to cut burgeoning federal budget deficits is a factor, with energy subsidies of all kinds coming under the spending microscope. But that is by no means the only, or even the biggest, hurdle

"I think if we were simply arguing the fiscal austerity issue, we would have a very strong chance of getting the PTC passed in early 2012," said Ed Zaelke, a partner at the law firm Akin Gump Strauss Hauer and Feld.

The bigger problem is a partisan divide in Congress exacerbated by the fact that 2012 is a presidential election year, he said. Republicans see renewable energy as something president Barack Obama "gains from succeeding on and therefore they’re opposed to it," Martin said.

Failed solar manufacturer Solyndra, which declared bankruptcy after receiving a $535 million government loan guarantee, has become a focal point for their attack.

"Solyndra continues to hurt," said Zaelke. It makes little difference that, according to a December report from Bloomberg Government, 87% of the $16.1 billion value of all the loan guarantees awarded under the program went to generation projects that are proceeding with little risk of default, including four wind facilities backed by $1.687 billion in government guarantees. It also doesn’t seem to matter that Solyndra is completely unrelated to wind energy.

"It’s all tied together in people’s perspectives," said Amy Grace, North American wind analyst with Bloomberg New Energy Finance. "There is no nuance in Washington."

If the industry is unable to push through an extension early in the year, said Zaelke, it will likely have to wait until after the November election "when there is nothing to be gained by fighting over this anymore."

The uncertainty around a PTC extension is helping drive what is expected to be one of the largest installation years on record in the US in 2012, said Matt Kaplan, senior analyst with IHS Emerging Energy Research.

The rush to build out as many projects as possible before the end of the year means there will be an inevitable drop in installations in 2013, he added. The size of the cliff dependent on when, and if, the tax credit is extended.

He said: "If the PTC is not renewed until the end of the year, it is going to be very difficult for developers to get power purchase contracts and have a good build year in 2013.

"The worst case scenario is about 1.5GW of wind installed. Some folks are saying less, but we think that is probably a fair bet."