United States

United States

US policy failures prompt continued need for PTC

A powerful committee in the US Congress has proposed extensions to the US's key support mechanism for wind for a further five years, potentially providing some breathing space for an overstretched supply chain. But its course to becoming law will be a difficult path to navigate.

An extended PTC would give developers more time to complete projects and avoid supply chain bottlenecks(pic: Apex Clean Energy)
An extended PTC would give developers more time to complete projects and avoid supply chain bottlenecks(pic: Apex Clean Energy)

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Wind’s main subsidies, the Production Tax Credit (PTC) and Investment Tax Credit (ITC), are due to expire this year. This has led to a rush of installations in 2019, and concerns of a bottleneck in the supply chain, which could have left some projects stranded without the support.

The Growing Renewable Energy and Efficiency Now Act (Green Act) was passed by the House Committee on Ways and Means, which makes budget recommendations to the government and is currently controlled by Democratic party members. 

The proposed tax bill would extend the ITC — typically used by offshore wind and solar developers — for five years, and extend the PTC — used mostly by onshore wind projects — at 60% of its maximum total, also for five years. 

A 60% PTC would be worth $0.015/kWh. 

Under the Green Act, onshore wind projects could still opt for either the PTC or ITC, said Aaron Severn, senior director for federal affairs at the American Wind Energy Association (AWEA).

Changing times

However, the extended credits are "unlikely" to pass Congress by 31 December in time to prevent a gap in support, said Dan Shreve, head of global wind energy research at Wood Mackenzie Power and Renewables. 

AWEA’s support of extended credits has been a U-turn for the lobby group, which previously backed the phase-out of the PTC and ITC after the last extension was granted four years ago.

Tom Kiernan, CEO of AWEA, explained the market "has changed significantly since 2015" meaning continued tax credit support was still needed by the industry. 

"[A] national carbon policy hasn’t materialised, and we have new tariffs significantly raising the cost of wind energy and US manufacturing," Kiernan said.

Analysts at Wood Mackenzie said current tariffs on imported wind components can add 5-20% to the cost of a wind project. 

AWEA’s Severn also pointed to the 51GW of wind-friendly transmission capacity that was expected — but which has not happened — when the phase-out was agreed.  

The Green Act tax credit extensions could delay any layoffs or plant closures for the country’s 6GW-a year of component manufacturing sector after the market slowdown that was expected following the end of the phase-out, AWEA added. 

Process

AWEA was lobbying for parity with solar’s "Section 48" ITC reduction, which starts stepping down starting next year then reaches a permanent 10% in 2022. 

"Our preference is still adding wind to the Section 48 ITC with the same value and phase-out schedule as solar, but the bill provides a 60% PTC with a direct pay option, which is equivalent in terms of economic parity," said Severn. 

Key elements of the Green Act, such as tax credit extensions, could be included in a tax ‘extenders bill’ but might have to be buried in other legislation that the US president is keen to support. 

The bill would also need to be passed by both US legislative houses: the House of Representatives, which is likely, and by the Republican-controlled Senate, which is less likely even though support for tax credits is often bipartisan.  

It does not help that the federal government is facing an imminent shut-down, and the presidential impeachment hearings are dominating political discourse.

"I see little chance for the bill to go forward [this year] as currently constituted, but it certainly helps set the stage for a larger tax negotiation in 2020," said Shreve. 

Severn stressed that the Green Act proposal is a ‘marker’ bill which is typically a starting point for discussion.

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