FOR WIND, A SLUMP IN ’09 AND A BOOM IN 2010

Stimulus Bill Lays Foundation for 2010 US Wind Surge is a superb and succinct new research report from Joshua T. Magee of Emerging Energy Research (EER).

Magee took a careful look at the effects of the financial crisis that emerged late in 2008, at the stimulus packages passed in October 2008 and February 2009 and developed some fascinating findings.

He made a brief and masterful presentation of his research and his findings at the EER booth on the first full day of the American Wind Energy Association (AWEA) WindPower 2009.

Image used by courtesy of Emerging Energy Research. (click to enlarge)

Magee reiterated common wisdom in describing the impact of the financial crisis on the wind industry: Access to capital disappeared. Previously, unprecedented growth had been financed by institutions anxious to use the wind industry’s production tax credit (PTC) to offset big earnings. In 2008, those institutions didn’t earn so they didn’t need to offset income taxes on income they weren’t earning.

Magee said that of 15 financial institutions taking an ownership role in wind projects in return for the opportunity to use the PTC in 2007 and early 2008, 6 remain active this year. Some are gone (like Lehman Brothers), some have been absorbed by the government (like AIG) and some merely backed out of the market (like GE Finance).

In the October 2008 stimulus bill, the PTC was extended but in the new financial circumstances, it was almost irrelevant. In the American Recovery and Reinvestment Act (ARRA) stimulus plan of February 2009, wind developers were given new options. They include: (1) a 30% investment tax credit (ITC) instead of the PTC; (2) a cash grant from the U.S. Treasury of equal value to the ITC; (3) Bonus depreciation; (4) A loan guarantee from the U.S. Energy Department; (5) Clean Renewable Energy Bonds; (6) New Market Bonds; (7) A 30% ITC (an Advanced Energy Project Credit) for construction or expansion capital costs on a New Energy facility. The research report describes the options and contains a concise chart detailing them.

Image used by courtesy of Emerging Energy Research. (click to enlarge)

The most attractive benefit will likely turn out to be the cash grant from Treasury but different benefits will apply and appeal in different ways.

Two important points on the time line: (1) The applications for these benefits, which may be put together in yet-to-be devised ways, will not be filed until July and will likely not be fully processed before September. (2) ARRA requires eligible projects to begin by the end of 2010 and be producing by the end of 2012.

The results: (1) Wind manufacturers and producers will likely spend the rest of 2009 understanding the benefit options, deciding how and when and where to apply for them and preparing to put them to work. (2) They wlll leap into action at the start of 2010.

Image used by courtesy of Emerging Energy Research. (click to enlarge)

The many benefits of ARRA will likely spawn more than normal action and carry the wind industry (and the other New Energy industries) a long way toward fulfilling President Obama’s goal of doubling U.S. New Energy capacity in 3 years.

Magee was asked how certain he is that the boom he is predicting will materialize. He admitted nobody can know with certainty there will not be another, unforeseen setback to reverse the economy, financing availability and his findings. But he also mentioned that GE Finance, which had been the 2nd biggest user of the PTC in 2007 and 2008 but had backed completely out of the market in recent months, is now starting to test the waters.