The US Congress passed a retroactive one-year extension of the PTC in December, allowing projects that were able to start construction before the end of 2014 — either by spending 5% of total project costs or starting actual physical work on the project — to qualify for the credit.
But until the IRS released its new guidance in March, projects had to be online by the end of this year in order to avoid scrutiny and risk not receiving the credit. The tax agency's decision to extend that commissioning deadline to the end of 2016 allows developers, especially those who moved to qualify an estimated 7GW of new projects in the last few weeks of 2014, more time to finish development work and find buyers for their power.
Like most major US developers, RES Americas used the short window of opportunity between the extension of the PTC in mid-December and its expiry at the end of the same month to set new projects in motion.
"We really had to move quickly in December and managed to qualify another 800MW to 1,000MW," Rob Morgan, the company's chief strategy officer, said in February at Infocast's wind power finance and investment summit in San Diego. "We think this is now all about getting the power purchase agreements (PPAs) for those qualified projects figured out."
Elusive power purchase contracts
Finding those PPAs is getting harder, panelists agreed, and the tight timelines add to the difficulty. "I think offtake agreements are the primary challenge to realising a lot of the pipeline in the market," said Tim Howell, managing director for power and renewable energy at GE Energy Financial Services.
The challenge should focus a lot of activity on Texas, one of the only places in the US where it is possible to build projects without a long-term power purchase contract. Developers in the state are able sign hedge contracts with banks or commodity trading houses that stabilise cash flows enough to attract project financing by guaranteeing a price for at least a portion of the project's output.
"We're all searching for PPAs or offtake agreements with commercial and industrial customers in markets all over the US. But as the clock begins ticking, maybe there aren't enough of those deals, and you still have a turbine overhang, it's simply easier to do a hedge deal in Texas," said Shalini Ramanathan, vice-president of origination at RES Americas.
Financing could also raise some hurdles. Most developers need to find investors that have a large enough tax bill to actually make use of the PTC, and Burton says the supply of tax equity is barely keeping up with demand. "We have a few more tax equity investors than we had a few years ago, but we also have a lot more projects."
The fast-growing solar market in the US also requires tax equity, and competition is expect to heat up as that industry nears the expiry of its own tax subsidies at the end of 2016. "Next year will be an absolute crunch year with the solar guys pushing to reach completion of their projects before year end, so there will be a lot of people crowding in for tax equity," Keith Martin, a partner in law firm Chadbourne and Parke, told Infocast delegates.
But Howell, whose company is a major player in the tax-equity market, thinks the money will be there when it is needed. "Good project will attract tax equity capital," he said.