The production tax credit (PTC) for wind power expired effective Jan. 1 but developers aren’t ready to hit the panic button just yet.
That’s due in part to the fact the PTC was revised as part of a “tax extenders” package enacted by congress in January 2013. The 2013 deal stipulated wind projects only need to start “construction” by the end of 2013 in order to qualify. In addition, the Internal Revenue Service (IRS) defined construction rather broadly so developers who made a 5% investment and met other requirements in 2013 might still qualify.
Previously wind projects had to actually be placed into operation by Dec. 31 of the year in which the tax credit was expiring. The PTC falloff is abrupt as a result, although wind developers do want to see a longer-term solution, according to the American Wind Energy Association (AWEA).
“The change made to the PTC in 2013 allows projects that start construction this year to qualify for the PTC, which acknowledges the 18-24 month timeline of wind projects, and will allow companies to continue to build projects past 2013,” Senior Vice President of Public Policy Rob Gramlich said in 2013.
Congress needs to make a longer-term solution in 2014, AWEA says. “The legislative vehicle could be tax reform, an extenders package, or something else, but ultimately our industry will begin to feel the impacts of uncertainty in 2014,” Gramlich has said.
On Dec. 18, Gramlich also praised energy tax policy discussion launched by Sen. Max Baucus (D-Mont.). Industry observers think another “tax extenders” deal is unlikely while congress is still pursuing tax reform.
Baucus has said that he wants to compress a series of federal energy tax incentives, which were passed in a piecemeal fashion over time, into a coordinated system of tax breaks.
Today, there are 42 different energy tax incentives and 25 are temporary and expire every year or two, Baucus has said. The PTC falls into the category of temporary credits that needs renewal on a regular basis.
“We commend Chairman Baucus and the Senate Finance Committee for putting forward a sound policy option to provide domestic energy producers with stability for the years to come,” Gramlich said.
“The tax code has a century-long history of incentivizing American-made energy, and we must continue to ensure that we have plentiful, secure, clean, affordable energy to power our economy. Wind energy has already proven that it can deliver in these areas and it must continue to be a critical part of the U.S. energy mix,” Gramlich said.
Mostly because of the PTC lapse at the end of 2012, wind capacity installation was down dramatically for the first 11 months of 2013. At the end of November 2012, 7,808 MW of wind capacity had been installed. By comparison only 1,108 MW of wind have been installed during the first 11 months of 2013.
But the more generous PTC, requiring only that projects start IRS-defined construction by the end of 2013, should make a big difference in 2014, officials have said.
“Despite experiencing a sharp slow-down in the first six months of 2013, the wind industry has picked up steam,” said AWEA’s Gramlich. “Utilities have been signing a record number of Power Purchase Agreements for wind energy, manufacturers have been re-hiring and many projects have begun construction,” Gramlich said.