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Construction pause this year in America -- Effects of PTC delay hit home

After a banner year for wind development in the US, the failure of Congress at the end of 2001 to extend the Production Tax Credit (PTC) for wind energy development is causing developers to take a break from the frantic construction schedules of the previous year. The immediate effect on the industry was seen at Vestas, which put 1200 workers in Denmark on half time for an expected period of 12 weeks. The Vestas Group employs more than 5000.

Despite the development pause, the US industry is still acting optimistic. After adding close on 1700 MW of wind capacity last year and boosting the total to 4258 MW, according to the American Wind Energy Association (AWEA), companies have another 2700 MW of projects on the engineer's table for 2002 awaiting a PTC extension. For this reason, says Vestas' boss Johannes Poulsen, "We have chosen to keep production capacity for turbines to the USA at [a] high level," and put workers on part time rather than fire them.

Anybody's guess

Some of the projects are speculative, some are in early planning, and some are simply waiting for the PTC extension before breaking ground. But whatever stage they are at, it is clear developers will stay away from construction sites until Congress acts. When that will happen is anybody's guess, says AWEA's Christine Real de Azua. An extension of the PTC, which is worth $0.017/kWh for the first ten years of a project's life and is equivalent to tens of thousands of dollars for each turbine, could follow one of several political paths.

A one or two year extension is buried in one or another of the economic stimulus packages proposed by the Senate and the House of Representatives. These were set aside in December as legislators found it impossible to resolve differences that have nothing to do with the PTC. In fact, a PTC extension is a non-partisan issue. Republicans and Democrats, as well as both legislative branches, agree an extension is necessary.

A five year PTC extension is included in energy legislation proposed by the House. The issue is now in the Senate's court, but controversy over the House's plan to allow oil exploration in the Alaska National Wildlife Refuge could hold up a US energy bill indefinitely. The simplest and perhaps quickest route to a PTC extension is an "extenders bill" that could also apply to other expired tax credits. "It's hard to say which of these options will make it to the finish line, let alone which one will come first or when," says Real de Azua. "The key thing is that one passes as soon as possible."

The last time the PTC expired without congressional action was in 1999. It took lawmakers until November 2000 to extend it for two and a half years and make it retroactive to July 1. That year the industry installed just 52 MW, far below 1999's 800 MW total.

Whether the wind industry will encounter similar doldrums this year depends on how quickly Congress can pass a new PTC into law. If it is soon, the industry appears anxious to begin building at least some of the projects on the drawing board. While the timing of the plans may be affected by the PTC delay, they will still be there once the extension is approved. "I think this is just the beginning," says Tom Matthews, president of US Windforce, which just announced plans to build a 250 MW project in West Virginia. "The renewable energy market in the United States is in a sea change, that is if our politicians move in the right direction. I'm very optimistic."

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