The vote extended the PTC until the end of 2019, at which point it will fully expire. Any wind farms that enter construction before the end of 2016 will be eligible for 100% of the PTC (an inflation-linked $0.023/kWh credit that pays out over 10 years). The policy also includes a gradual phase-out, with projects receiving 80% of the tax credit if they begin before the end of 2017, 60% for projects beginning in 2018, and 40% for those beginning in 2019.
Since its introduction under the 1992 Energy Policy Act, the PTC has been allowed to expire before being extended six times. This uncertainty directly impacted the US wind industry, contributing to job losses and declines in new projects and wind capacity during years following the expiration of the tax credit. LM Wind Power has also had to adjust capacity in our Little Rock and Grand Forks plants to reflect decreased demand after PTC expiry.
As LM Wind Power’s Commercial Director for the Americas, Dorte Kamper has closely followed the debate around the PTC’s extension throughout the years. Now Dorte shares her perspective on this important step for the American wind industry.
Stable policy for long term growth
Over the years, the Production Tax Credit (PTC) has been instrumental for the American wind industry —making it possible for wind to now deliver close to 5% of the total energy consumption in the US, and in many states more than 25% of the energy consumption. As other energy sources receive their own subsidies, the PTC has been a way for wind to compete on a level playing field and to attract the investments needed to move the industry from a small scale to its position today as a real alternative to fossil fuels. We now have 75,000 colleagues in the US wind industry across 43 states!
All industries need stable and predictable tax policy. The fact that several times the PTC was extended by only one or two years and at the very last minute (i.e., during the last 10 days of the year in 2014 and 2015) has made it difficult for the wind industry to make long term plans and to attract investors with long term strategies. This five year extension — even with a phase-out — enables the industry to make those long term plans and invest in reducing the cost of energy, and thereby be competitive with other energy sources.
Investing in the future
Analysts are very upbeat about this extension. For example, Make Consulting expects the PTC extension to add an extra 14 GW of wind to the US market from 2016-2021 on top of their existing market forecast.
The American wind industry also considers the five year extension of the PTC with a phase-out as an important bridge towards the Clean Power Plan, which the Obama administration announced in the fall of 2015. The Clean Power Plan requires reduction of carbon emissions by 32% in 2030 (compared to 2005 levels), and wind energy is a way for states to comply with their individual targets.
Furthermore, corporate and industrial buyers in the US are increasing their presence in the wind market. Just before December’s United Nations Climate Conference in Paris, many large American corporations signed on to a climate pledge with the White House, and wind was an important factor for many of them. Among the companies signing were American Express, Berkshire Hathaway Energy, Gamesa, Goldman Sachs, Iberdrola USA, IKEA USA, Invenergy, Mars, Procter & Gamble, Tri-Global Energy, Apple, Bank of America, Coca-Cola, General Motors, Google, Microsoft, PepsiCo, UPS and Walmart.
The wind industry is growing, and with growth comes new challenges. At LM Wind Power, we are ready for these challenges. The PTC provides the long term certainty and stability that allows us to continue to confidently invest in the future with our customers, to the benefit of our business, our employees and the local communities in which we operate. For instance, at the end of 2015, our Grand Forks team finalized an expansion that enables the plant to produce the long blades which our customers want.
To be sustainable, in the end the wind industry has to be competitive on its own without any subsidies. Therefore, along with our customers and suppliers, LM Wind Power is constantly focused on reducing the cost of energy. We push technological boundaries in developing longer blades and other innovative solutions to increase energy production and continuously work to reduce manufacturing costs. Because, by reducing the cost of energy, wind can compete against other energy sources and be the long term solution.
North American Wind Power: US Wind industry obtains five year extension of the Production Tax Credit
Recharge News: Republicans set to accept five-year PTC/ITC extensions
Scientific American: Renewables boom expected thanks to tax credit
Union of Concerned Scientists: Production Tax Credit for Renewable Energy