While a one-year extension of the wind energy production tax credit (PTC) remains alive in an omnibus tax-extenders bill passed by the Senate Finance Committee in August, some policymakers say the incentive could ultimately be renewed in a different form.
Despite the PTC's inclusion in the tax-extenders bill, the tax credit's fate remains uncertain, as some members of Congress – including a handful of anti-renewables House conservatives – may seek to strip the provision from the legislation. Therefore, in order for a PTC extension to gain enough votes to pass, many Republican lawmakers would need to be assured that the incentive will eventually go away.
Enter the PTC phase-out. The idea has been floated many times, including by Senate Finance Committee Chairman Max Baucus, D-Mont. However, this time, the proposal may be gaining some serious support.
At a news conference held Tuesday on Capitol Hill and hosted by Sen. Chuck Grassley, R-Iowa, the author of the original wind energy PTC legislation, a bipartisan group of governors – including Govs. Terry Branstad, R-Iowa; John Kitzhaber, D-Ore.; Sam Brownback, R-Kan.; and John Hickenlooper, D-Colo. – emphasized the importance of extending the PTC, as well as the economic benefits it would provide.
Because of the longer timeline needed to finance and build wind projects, the governors stressed, the industry might be better served by a multiyear phase-out than by a one-year extension. In a letter written to Congress this week, the group of governors – who, along with others, are collectively known as the Governors' Wind Energy Coalition – communicated their preference for a multiyear extension.
‘As you deliberate on the PTC extension, we encourage you to account for the 18 to 24 months of time needed to plan and finance projects,’ they wrote. ‘The bipartisan bill passed by the Senate Finance Committee accounts for this necessary business timing. In short, a multiyear extension would be more effective for manufacturers."
Brownback noted that despite Kansas' massive investment in wind energy over the last year, the state's development plans have stalled due policy uncertainty.
"We have virtually no new wind operations going in next year, after nearly $3 billion in investment this past year," he said. "That shows you how dramatic the impact of the production tax credit is. With the extension of the production tax credit, there will be much more wind investment, much more wind electricity produced and much greater opportunity for us to become the renewable state."
Brownback said he would like to see a three- or four-year phase-out of the tax credit but admitted that a one-year extension would probably be more realistic.
"I've talked with a number of different people about having a three- to four-year phase-out, which is really what we ought to do on the PTC,’ he said. ‘Right now, we're really just trying to get the one-year extension moving forward – but the talks have been going on.’
Grassley said he also likes the idea and that he would be in favor of a gradual phase-out of about 20% per year.
Under the PTC-extension provision currently included in the tax-extenders bill, not only would the PTC be extended until Dec. 31, 2013, but the placed-in-service deadline would be changed to a start-of-construction deadline. In other words, projects would have to have started construction before Dec. 31, 2013, to receive the $0.022/kWh incentive.
However, according to a policy briefing provided by law firm Akin Gump Strauss Hauer & Feld, this aspect of the provision may complicate the political discussion.
‘If the PTC is extended for one year with this change, wind farms could qualify if they were placed in service after 2013, so long as five percent of their cost was incurred in 2013," the firm said. "Such a change may raise technical questions, and it is not clear how the House Republicans will react to it."
Clues from Grassley
Ultimately, the fate of the PTC will depend on the priority given to the incentive as a part of measures taken to avoid the fiscal cliff, Grassley noted.
"There's a lot that drives this besides just wind energy, because it's part of 60 provisions of the tax code sunsetting," he said. "Probably the engine that pulls them all along is the research and development tax credit. And I would expect that they would all go through, although a lot depends upon conversations that are going on now unrelated to wind or unrelated to the extenders – the conversations that are going on between Speaker [of the House John] Boehner and the president of the United States."
Although Grassley is an ardent supporter of the PTC, he said he is cautious about pushing too hard for its extension, as it could aggravate political tensions and lead to a stalemate.
"I don't think, at this point, I'm going to try to influence the debate," he said. "I'm more interested in the process going forward right now, and I don't want to impede that process by saying anything that would show that there's disagreement."
Right now, addressing the fiscal cliff is the top priority of both the president and Boehner, Grassley added. According to Brownback, a PTC extension should be included in that discussion.
"Everyone wants to deal with the financial problems we have as a country," Brownback said. "I think there's a more prudent route to go here than to just end this PTC, because the key to solving our fiscal problems in this country is growing the economy – and this helps grow the economy."
