Federal tax credit nearly home and dry -- One year PTC almost certain but not enough to prevent slow down

Short of a legislative train wreck in the US Congress, another 12 months is almost certain to be added to wind power's all-important Production Tax Credit (PTC). Worth about $0.017/kWh, the credit is available for the first decade of a project's life for owners of wind plant. The extension, which is more likely than not, would be a second wind for projects unable to make the current December 31 deadline for expiry of the PTC. It will also be a boon to wind plants that are poised to go ahead. But given the lead time for full project development, an extension of only one year could mean that in 2002 US wind development slows down significantly, perhaps by as much as half. About 2000 MW is in-line to be installed by the end of this year.

In more good news for the wind market from Washington DC, on November 12 President George Bush signed into law a bill upping the wind power research and development to $41 million for fiscal year 2002, which started on October 1. That amount is slightly higher than for fiscal year 2001 and twice the amount that the president had initially proposed for wind in the spring.

The Production Tax Credit is by the far more important of the two issues. It is included in a $67 billion economic stimulus package approved on November 10 by the powerful Senate Finance Committee. The package includes a one-year extension of all expiring tax credits. The bill passed by a narrow margin in the Democratic controlled legislative body, with the vote along party lines.

The full Senate was expected to debate the issue in late November or early December. In October the Republican dominated House of Representatives passed an equally partisan economic stimulus package including a two year PTC extension (Windpower Monthly, November 2001). The differences between the two versions must eventually be negotiated, which means that wind is most likely to get an extra year or more.

"I'm fairly certain we'll get at least a year, short of a legislative train wreck," says Randy Swisher of the American Wind Energy Association (AWEA), which has lobbied for a five year extension. Negotiations on the economic package are not expected to be drawn out, since the faltering US economy is a pressing issue. A modest extension of wind's tax credit is not contentious, says AWEA. The hot button issues are far broader, such as individual versus corporate tax cuts, and tax cuts versus unemployment benefits.

In a warning against a short term fix, Senator Byron Dorgan of Montana told the chair of the senate finance committee that a one year extension will undermine confidence in wind projects and lead to a "boom and bust cycle."

Boom and bust

One of wind's leading proponents, Byron continued: "Many wind developers will not move ahead with new wind energy projects unless we can provide them with assurances that if they build and purchase equipment, secure financing, obtain environmental permits and take other steps needed to bring a new wind facility on-line, they will be able to access the tax credit."

Ed Maddox of Seawest, a California wind developer, agrees that a one year extension this close to the deadline is not enough. "We'll see a lull in the capacity addition in the US. It will really only help projects that are slated to go ahead anyway in 2002," says Maddox, who is one of the wind people who have lobbied Congress for more time. The minimum needed, given the lead time for project development, is two years. And five would be far better, he says. Seawest, which has several projects in the pipeline, will develop two in 2002 if the deadline is only delayed by 12 months.

A longer PTC could still, however, be part of an energy bill if one is passed this legislative session. Work on energy legislation had already been dragging even before September 11. The House of Representatives has passed a package, but it includes a go-ahead to drill for oil and gas in the Arctic National Wildlife Refuge, an explosive issue even with recent talk about America's energy security. The word on Capitol Hill is that energy legislation will not be debated until next year, in the run-up to the congressional elections in November 2002.

Close to the wire

Some of the projects that will be helped, even if there is only a one year extension of the PTC, are those that were to have been completely installed by December 31 but which slip behind schedule. These include EnXco's 80 MW Chanarambie project in southern Minnesota (EnXco and Xcel Energy are still negotiating an arrangement) and Energy Northwest's 48 MW Nine Canyon wind farm in eastern Washington, to be built by Renewable Energy Systems (RES) of the UK.

Other projects are running nip and tuck to meet the deadline. Those are FPL Energy's 278 MW King Mountain project in Texas, which RES, who is building the project, says will be completed. FPL's 262 MW Stateline project on the Oregon and Washington border may be shy by a few turbines on the Oregon side, but those that are up and running are feeding the power grid. Cielo Windpower began construction at its 80 MW White Deer project in October -- and says it will be done in time.

Seawest's initial 24.6 MW phase at the Condon project in Oregon will be close, but Seawest says it will complete the plant this month. And, finally, the 24 MW Klondike project by Northwest Windpower in Oregon may still make the PTC deadline.

The $41 million wind research and development budget was signed into law by Bush as part of a $25 billion measure to finance federal water and energy programs. The fiscal year had started about five weeks before that, but legislative action was delayed in part because of September 11. In fiscal year 2001, wind was funded at $40 million. For this fiscal year, AWEA had sought an increase to $55 million, including $10 million for R&D for small wind systems.