The US Congress voted in December to phase out the $0.023/kWh production tax credit (PTC) and the alternative 30% investment tax credit (ITC) over five years, the longest uninterrupted stretch with federal incentives in place since the PTC, enacted in 1992, first expired in 1998.
"Having PTCs for five years will allow us to make more supply commitments and build more projects, creating more jobs," said Mike Garland, CEO of independent power firm Pattern Energy. "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 the credits."
The new policy extends the PTC and ITC at their current level for projects that start construction in 2015 and 2016. After that, the credits will step down to 80% of today's value in 2017, 60% in 2018, and 40% in 2019 with the last projects completing by 2021.
Make Consulting expects the plan to yield 14.5GW more wind-power installations than previously forecast between now and 2021, while Bloomberg New Energy Finance (BNEF) is slightly more bullish, predicting up to 19GW additional wind-energy build in the US for the period, on top of the 25GW that would likely have been built if the PTC was not renewed.
Beyond the installation numbers, however, the most significant impact of the extension is that it gives the industry an unprecedented planning horizon. This is likely to play out in a number of ways, observers say.
The focus of developers will be on taking advantage of the full-value PTC while it is still available, leading to a flurry of activity to qualify as many projects as possible before the end of this year.
"Many companies need to finalise a multi-year strategy quickly in order to secure preferred equipment and services," said Luke Lewandowski, Make's research manager. "The initial effort of developers will be to concentrate on evaluation of project pipelines toward the 2016 compliance deadline, with prioritisation of low-wind speed sites most reliant on a full-value PTC."
Projects qualified in 2016 will have two years to come online without risking a loss of the incentive, leading Make to project a market peak of 10.5GW of new project build in 2018 before tailing off through 2021. BNEF sees a similar pattern, estimating 11.6GW of installations in 2018, dropping to 6.4GW in the following year, 5.6GW in 2020 with 3.3GW in the final PTC year of 2021.
Most of the projects commissioned in 2019 will receive 80% of the current PTC value, which Lewandowski said is still attractive for sites with a strong wind resource, low development costs and ready access to load centres.
As the value of the credits continues to drop before disappearing altogether, it could "provide some challenges" for the industry, said Tom Kiernan, CEO of the American Wind Energy Association. But market stability is expected to help spur technology innovations that would close up the cost gap.
"The industry kept saying if you give us a long-term extension of the PTC we can actually invest R&D dollars and further reduce the cost of producing energy from wind," said Ed Zaelke, a partner in the global projects and finance practice at law firm Akin Gump. "They got what they wanted.
"It's not perfect, because the credit reduces, but manufacturers now have a long-term path to make those investments," he added. "They believe that by 2019, they will have the cost of energy from wind equal to what it is today with the PTC factored in."
The five-year extension to the incentive is widely seen as a bridge to 2022, when President Barack Obama's Clean Power Plan (CPP) is scheduled to kick in and tilt the playing field in favour of zero-emissions sources of generation.
With coal retirements looming, utilities will be looking to take advantage of wind-energy subsidies while they are still available, especially at the full $0.023/kWh value, said Zaelke.
"The old rule about get-to-the-getting-while-the-getting-is-good applies here. If you're worried about your coal plants going away, and you want to lock in cheap power, you are going to do it in the next couple of years while federal government is paying a bigger share of it through the PTC," he said. "I expect we're going to see a lot of new money coming into wind."
Utility demand for wind will be tempered by low growth in demand for electricity and competition from low-cost natural gas, but the long-term policy stability should also 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," said Lewandowski.
It will also have an impact on the investment side. Because most US developers do not have a big enough tax bill to use the credits themselves, they have to find so-called tax-equity investors who do. The boom-and-bust cycles of the past made it difficult to attract new tax-equity money to the sector, but with longer-term predictability, this could change.
"I think it would not be terribly surprising to see additional investors enter the market," says Jack Cargas, managing director at Bank of America Merrill Lynch.
The five-year extension of the ITC will help attract investment to more capital-intensive offshore projects, says Lewandowski, but the fledgling industry faces a tight schedule to qualify.
Only a few projects, mainly smaller-scale demonstration facilities, are in a position to start construction this year to capture the full 30% value, or even in 2017, when the credit drops to 24% of project costs. Even then, he noted, they still have to secure power purchase agreements.
"Larger-scale offshore projects are more likely to capitalise on lower ITC levels later this decade, but long-development horizons are a significant challenge," Lewandowski said, noting that accelerated permitting approvals and carve-outs for offshore generation at state level could help.
Deepwater Wind, which is in the midst of constructing the 30MW Block Island Wind Farm, believes that the extension positions the company to move forward with the multi-phase 1GW Deepwater One project off Long Island.
"The most immediate impact of the extension will be to secure lower power prices for consumers on Long Island and in Rhode Island and Massachusetts, where we hope to be delivering power from Deepwater One in the coming years," said chief executive Jeffrey Grybowski.