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United States

American roller coaster market sets off again -- Another short term extension of the federal production tax credit starts new cycle in ups and downs of United States wind market

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The US wind power market is back. After a nine month hiatus in which the country contributed just 17 MW to the 2800 MW of new wind plant online, wind's federal production tax credit (PTC) has been reinstated through to the end of next year. It was hitched to a pre-election family tax bill pushed through by Congress on September 23. The extension puts $3 billion in wind energy investments forecast for the next several years back on track, says the American Wind Energy Association (AWEA).

Construction of new projects came to a near halt this year when Congress failed to extend the PTC. The credit adds $0.018/kWh to the sales price of wind power generated during the first ten years of plant operation. Nearly all wind project financing in America is structured around the credit. Without it, the business has been in steep decline. Renewal of the PTC means around 5000 MW of development is ready to be sent skywards (Windpower Monthly, September 2004).

The new law extends the PTC retroactively from the date of its expiry, December 31, 2003 through to December 31, 2005. Coming so late in the year, however, getting wind stations built to take advantage of the credit in 2004 will be difficult. "There aren't that many projects that took the risk of going online this year," says AWEA's Christine Real de Azua. Next year, however, will be another story. "All of the pent-up investments are moving forward, so 2005 will be a very, very busy year."

Among wind turbine manufacturers, Denmark's Vestas is the only company to have broken ground this year on projects dependent on the PTC. By December 31 it expects to complete the 27 MW Buffalo Mountain project in Tennessee for Chicago firm Invenergy and it is building the 49 MW Crescent Ridge project in Illinois for Japan's Eurus. As expectations rose that the PTC would be renewed, Vestas registered increased activity last month from other developers in Kansas, Texas, Pennsylvania and New York, says the company's Tom Carbone. "Our customers have continued to work on their projects," he says. "Our emphasis now is to get these projects moving as early in 2005 as possible."

FPL Energy, the industry's dominant developer, has repeatedly said it is planning up to 400 MW in 2004. It is uncertain that can now occur. "It's a matter of getting equipment and materials and contractors, and that takes time," says FPL's Steve Stengel. FPL is working on something, he says, but will not say what. The only project announced by FPL this year is the 106.5 MW Weatherford Wind Energy Center in Oklahoma using GE 1.5 MW turbines.

PacifiCorp, a Northwest utility, released a solicitation for a huge 1100 MW of renewables capacity in February. The company's Dave Kvamme says it is ready to move ahead on a good portion of that, though not until 2005. "But to complete the 1100 MW, we need the PTC at least through 2006 or longer," he says.

Beyond boom and bust

The pattern of short term PTCs and legislative delays in getting the credit extended has meant a roller coaster existence for the US industry. A swift climb to 800 MW was followed in 2000 by a drop to 53 MW after the PTC disappeared for six months in June 1999. A two-and-half year extension followed, with steadily rising industry fortunes. But when the PTC expired in 2001 and was not extended until March 2002, installations plummeted from a record 1695 MW to just 410 MW. This year's expected sharp drop in new installations follows a near-record 1687 MW in 2003.

A longer term PTC extension, to the end of 2006, is still part of a pending corporate tax bill. The House of Representatives and the Senate have each passed a version of the bill, with differences between the two to be ironed out in committee. Whether that can be done before the November 2 election, or during the session before a new administration and Congress takes over early next year, is not clear.

But what is clear is that the wind industry needs policies that will move it "beyond the boom-and-bust cycles" of short term PTC extensions, says AWEA's Tom Gray. The association believes broader electric industry issues are helping that argument. "People are getting increasingly worried about electricity supplies and I think there is an awareness that wind power now has competitive costs and all kinds of advantages as insurance against the volatility in natural gas prices," says Real de Azua.

The final step for the family tax bill containing the PTC is the signature of President George Bush.

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