The US wind industry got what it’s been waiting for as the Internal Revenue Service defined the rules for receiving the Production Tax Credit (PTC), renewed for only 2013.
When the PTC was renewed as part of the Fiscal Cliff deal, wind developers could qualify if they began construction during 2013. That gave the industry a boost – previously the PTC applied only to projects that were completed and producing energy during the time period.
Under the PTC, developers get tax credits of 2.3 cents per kilowatt-hour for the energy produced over a decade.
But the industry wasn’t clear on what "beginning" construction means and that’s been holding projects back.
The IRS clarification is positive for the industry and will set the stage for growth this year.
The agency ruled that projects qualify for the PTC if they have "started physical work of a significant nature," including road construction, pouring of concrete or off-site assembly of turbines. Developers can also qualify if they have incurred 5% of the total project cost and make continuous progress
What does not qualify are projects in the very early stages of getting permits, conducting environmental studies or securing financing.
"I think they’ve found the right combination that gives developers an appropriate amount of flexibility for a broad range of project and construction scenarios," Jacob Susman, CEO of wind developer OwnEnergy Inc., told Bloomberg. He adds that the ruling protects taxpayers "by ensuring that real projects that have legitimately begun construction will qualify."
The ruling not only helps wind farm developers, it helps wind turbine and component manufactures in the US, such as Vestas and General Electric.
Nearly 70% of the wind turbines (and components) installed in the US are now made here, growing from just 30 factories in 2004 to 472 in recent years.
Still, wind installations this year will be far lower than 2012, dropping from 13.2 gigawatts (GW) to 2.8 GW because of uncertainty leading up to the renewal of the PTC, according to New Energy Finance. And because uncertainty remains about what will happen next year.
Wind projects have to be planned well in advance, so there isn’t much of a backlog for projects this year.
To level the playing field with conventional energy, Obama’s Science Advisors recommend broadening the tax credit for wind to include all forms of renewable energy and replacing the annual renewal with a longer time horizon of 5-10 years.