In a recent interview with Bloomberg, Sen. Max Baucus, D-Mont., suggested that the wind industry might be better served by a multiyear gradual phase-out of the production tax credit (PTC) – which is set to expire at the end of the year – rather than a long-term PTC extension.
‘The industry needs a little boost, but that boost can't last forever,’ Baucus told Bloomberg. ‘The more the industry can figure out a way to proceed by cutting back, phasing out, the better it'd probably be.’
Baucus' comment comes at a time when the American Wind Energy Association (AWEA) and others are desperately trying to secure an extension of the PTC, the key federal incentive credited with fueling the wind industry's growth over the past two decades.
Although AWEA is seeking an immediate one-year extension of the PTC, it appears the association – fearing it might not get a better deal in the future – would consider working toward a gradual wind-down of the PTC.
‘Despite what others may be saying, the industry continues to work for an immediate one-year extension of the PTC, lest we lose 37,000 U.S. jobs within a year,’ Peter Kelley, AWEA's vice president of public affairs, tells NAW. ‘We've been clear that we are willing to discuss options for the future of the tax credit after that. We've always been clear we will not need the PTC forever.’
Kelley characterized the PTC talk on Capitol Hill as ‘interesting’ but said there is no current proposals on the table addressing such a scenario.
The fact that Baucus – who is considered supportive of wind energy and who chairs the powerful Senate Finance Committee with sole jurisdiction over the federal tax code – raised the question is notable.
And it is not just Baucus. Other lawmakers, such as Sen. John Thune, R-S.D., and Sen. John Cornyn, R-Texas, have also broached the topic during recent Senate Committee on Energy and Natural Resources hearings.
Could it work?
Many wind developers suggest that the important element is time – that is, time to adjust business operations if a gradual phase-out of the PTC were pushed through.
‘Long-term clarity is more important than a short-term extension, as it allows the various participants in the American wind industry to properly plan their respective businesses,’ says Blake Nixon, president at Minneapolis-based developer Geronimo Wind. ‘This industry has shown an ability to innovate and drive cost out of the production of energy from wind. Thus, continued innovation should be able to mitigate a gradually declining PTC over time."
Matthew Gilhousen, senior vice president of wind development at Lenexa, Kan.-based TradeWind Energy, says he would support a phase-out as long as he and his group could prepare for it.
‘We need a multiyear extension of the PTC such that we have time to evaluate any ramp-down of the PTC in the context of a national energy policy,’ Gilhousen says, adding that TradeWind is already feeling the effects of the soon-to-expire PTC.
Without an immediate extension of the PTC, he says, the outlook for beyond 2013 is highly uncertain.
‘Developers seem to be cutting back on their portfolios in order to decrease overhead in preparation for riding out what could be – best case – 12 to 24 months of little to no projects getting built,’ Gilhousen says.
For his part, Gilhousen sees a future where partnerships and joint development deals will help to mitigate burdensome costs.
‘Without the PTC, the wind industry doesn't die," Gilhousen says. "But the version of it we know today certainly does.’
Whatever the outcome, it is clear that the wind industry will need to find a way to remain cost-competitive.
‘Many in the wind energy industry are coming to the view that the long-term stability of the industry will only be attained once the price of wind energy can be competitive with natural gas without the need for PTCs,’ explains Edward Einowski, partner at Portland, Ore.-based law firm Stoel Rives.
Einowski notes that the disruptions from lapses or pending lapses of the PTC have caused great strains on the industry in the past. He acknowledges, however, that a move away from the PTC will require an adjustment period.
Even so, Einowski says, the wind industry has closed the gap considerably – albeit with a PTC subsidy – when it comes to competing with the cost of natural gas. Such gains, he says, suggest that the wind industry is not far off from competing head-to-head with natural gas without a PTC.
"Any move to sunset the PTC should be accompanied by new measures that will put the wind industry on par with other energy resources that enjoy permanent support from the tax code, including access to tax-advantaged structures like master limited partnerships,’ Nixon adds.