Wind energy tax credit extended as advocates hope for multi-year term
Wind power and clean energy advocates breathed a sigh of relief after Congress voted to extend the tax credits for research and development of renewable energy for 2013. Workers in the wind energy had feared the tax credits, which were set to expire at the end of 2012, would not survive amid the “fiscal cliff” bargaining in Washington last month. The deal includes a one-year extension of tax credits for wind power production and offshore wind projects, a significant sign of support for the nation to foster energy independence, develop a broader energy base and reduce carbon emissions.
The U.S. Department of Energy estimates that the wind industry could supply up to 20 percent of the country’s electricity by 2030. Companies that generate wind, solar power, geothermal and “closed-loop” bioenergy are eligible for the 2.2 cent per kWh Production Tax Credit (PTC), which applies for the first ten years of electricity production from utility-scale turbines. These tax credits have helped keep the industry active for 18 years, when they were first enacted as part of the Energy Policy Act of 1992. However, Congress has repeatedly gone back and forth between extending the credits and allowing them to expire, contributing to sharp fluctuations in development and industry growth.
Short term extensions are often insufficient for sustainable progress, since the planning and permitting process for new wind facilities can take up to 2 years or more to complete. As a result, developers who depend on the PTC may hesitate to build new facilities if there is uncertainty about the availability of the credits once the projects completed. This time, the credit will apply to projects that begin construction in 2013, meaning developers won’t have to rush to get wind-power installations running before the end of the year. In addition to the extensions, wind and other eligible renewable energy sources may qualify for a 30 percent investment tax credit instead of the PTC, so long as they begin production in 2013.
Several House Republicans have criticized the extension, saying there is no clarification as to what “under construction” actually means and which projects would qualify for the credits. While some industry experts consider construction under way once developers invest 5% of the project cost, others say actual physical activity must have begun at the project site. Rep. James Lankford (R-OK) and Rep Darryl Issa (R-CA) of the House Oversight and Government Reform Committee vowed to put the wind power tax credit under increased oversight, saying the extension could expand the federal deficit and cost $12.1 billion over the next 10 years.
Wind power production employs thousands of people across the country. According to representatives of the American Wind Energy Association, the one-year extension could save up to 37,000 jobs nationwide. In Colorado, the tax credits are vital to keeping those employed in the wind industry working. In Virginia, more than 133 square miles of ocean off of Virginia Beach is being considered for development of wind farms. In a recent report from Environment Michigan, environmentalists said wind development in the state alone is equivalent to removing 48,000 vehicles off of the road each year. If the PTC’s were extended until 2016, that number would jump to 169,000.
Representatives in all three states pushed hard to extend the tax credits, and said they hoped to see them extended beyond a year-to-year basis. An extension for a multi-year term would allow more projects to be built, more workers to keep their jobs and less dependence on environmentally unfriendly forms or energy.
About the Author
Charles is a Vice President in the Renewable Energy Clean Technology Practice at William Gallagher Associates, working with independent power developers, owner operators and manufacturers in the business of power generation.