The push is on to extend tax credits precious to the renewable energy industry, some of which expire at the end of this year.
As of January 1, investors will no longer be able to get cash grants for renewable energy projects, only tax credits.
The cash grants were part of the Recovery Act – to spur financing for renewable energy projects at a time when tax credit financing collapsed with the economic downturn.
Since then, there’s been modest improvement in the tax equity market but it hasn’t recovered to pre-recession levels, while demand from clean energy projects has grown dramatically.
A July 2011 survey of the major tax equity investors by the U.S. Partnership for Renewable Energy Finance estimates expiration of the program would shrink the total financing available for energy projects by 52% in 2012.
The Renewable Energy Production Tax Credit (PTC) expires at the end of 2012. The credit provides a 2.2 cent per kilowatt hour credit for energy produced by qualifying facilities for 10 years. The expiring PTC applies to all renewable energies other than solar, which expires in 2016.
IHS Emerging Energy Research concludes the PTC, in place since 2005, has supported growth in the wind industry, for example, of an average of 5.6 GW a year, 83% of nameplate wind capacity in the US. It’s helped the US industry reach a robust level of 43,461 MW installed through September, with more than 8,400 MW under construction. Without the PTC installations could collapse from an annual peak of 10.5 GW in 2012 to as low as 1.5 GW in 2013.
House & Senate Democrats Support Extension
34 Senate Democrats sent a letter to Senate leaders calling for extension of the 1603 program in the year-end tax package.
"Over the last two and a half years, the [Treasury Grant Program] has leveraged nearly $23 billion in private sector investment for 22,000 projects in every state and across a dozen clean energy industries, including solar, wind, biomass, fuel cell, combined heat-and-power and hydropower projects," the letter says.
The program has "supported" roughly 290,000 jobs and spurred construction of enough new generation capacity to power over a million homes, says the letter.
It also asks the Senate to extend the production tax credit (PTC) that’s due to expire at the end of 2012.
Signatories include: Energy and Natural Resources Committee Chair Jeff Bingaman (D-NM), Foreign Relations Committee Chair John Kerry (D-MA), Environment and Public Works Committee Chair Barbara Boxer (D-CA), Maria Cantwell (D-WA), Sheldon Whitehouse (D-RI), Ben Cardin (D-MD), and Ron Wyden (D-OR).
88 House Democrats sent a similar letter to their leadership, saying tax equity financing still can’t adequately support clean energy projects.
Governors from 23 states also sent a letter asking for a four-year extension of the PTC, calling it the minimum timeframe needed to lure new investments boost domestic energy production.
"The leading wind project developers and manufacturers are slowing their plans for 2013 and beyond due to the current uncertainty. Some developers have no projects scheduled for 2013, and are beginning to lay off employees. The ripple effect of this slow down means reduced orders for turbines and decreased business for the hundreds of manufacturers who have entered the wind industry in our states. If the tax credit is allowed to expire at the end of 2012, there will be negative impacts on the high-tech manufacturing jobs that the industry has brought to or created in our states," the letter says.
750 companies also sent a letter to Congress calling for a one-year extension of the the Treasury grant program.
Republican lawmakers are using Solyndra to question and criticize federal renewable energy investments in general.
"The urgency to renew the PTC and the 1603 program, which expire at the end of 2012 and this year respectively, is not well understood," says Pat Eilers, Managing Director of Madison Dearborn Partners. "The market reality is that wind projects need to target an operational date of September 2012 to obtain tax equity and/or debt financing commitments.
Projects scheduled to go active after next September will not be considered by investors as it does not allow enough margin for project delays to meet the end of year deadline to qualify for the PTC. This means that financing needs to be in place and construction started by March 2012. From a practical perspective, the PTC expires in four months.
In addition, the ability to use tax credits is highly constrained because the tax equity market is predicted to be only able to satisfy approximately half of the current renewable market demand for 2012. Further, the tax equity market can’t be relied on given the troubled credit market environment the renewable industry experienced in 2008 and 2009.
Without extension of the PTC and 1603, we will see an approximately 50% contraction in renewable energy investment, project development and its supply chain over the next two years.
The PTC extension is paramount for the wind industry with the 1603 program working as a critical complementary program to afford tax equity supply to meet demand and ensure developers the ability to monetize both the PTC and ITC tax credits in the challenging credit markets. If the PTC and 1603 are not renewed immediately, investment, construction and the associated job growth will be significantly crippled."
Arno Harris, CEO of leading solar developer Recurrent Energy, says, "Conventional forms of energy have enjoyed stable incentives for nearly a century – if renewables are given that level playing field, the market will continue its growth and its trajectory toward cost parity."
Extending the credits would benefit all forms of renewable energy. You can write your representatives to support the extension here: