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  • QUICK NEWS, July 17: Offshore Wind Price Competitive With Nuclear; Solar Spreading As New Energy Costs Plummet

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    Founding Editor Herman K. Trabish



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  • FRIDAY WORLD, July 20:

  • ‘Carbon Ideoologies’ – A Big Warning
  • New Energy Is Setting Records In Europe
  • China Taking The New Energy Lead

    Tuesday, January 06, 2015


    2015 looks grim for wind energy. How will the industry adapt? Developers are steeling themselves for a future without federal tax credits Herman K. Trabish, December 18, 2014

    The final say from Congress on wind’s production tax credit set off a frantic scramble that will last through New Year’s Eve.

    “We are starting construction left and right,” said OwnEnergy CEO Jacob Susman. Projects that meet the IRS standard for starting construction by the end of the year will quality for the $0.023 per kilowatt-hour production tax credit (PTC).

    A deal on business tax credits would have extended the PTC two years, through the end of 2015. But the White House reportedly tried to leverageHouse Republicans’ commitment to the deal into permanent tax incentives for low-income workers and middle-class families, issuing a veto threat on a previous tax compromise.

    That backfired. On December 3, the House passed a retroactive one-year extension of the tax credit package, meaning the credits expire at the end of this year. The Senate pushed it over the finish line December 16.

    The 3-week extension

    “The extension to the end of 2014 will only allow minimal new wind development,” said American Wind Energy Association (AWEA) CEO Tom Kiernan.

    “There are only 3 weeks to dig holes or safe harbor turbines,” explainedRenewable Energy Systems Americas CEO Glen Davis. He was referring to the two standards by which the IRS defines starting construction.

    One way is “‘incurring’ at least 5% of the final project cost,” explainedChadbourne Partner Keith Martin, who specializes in tax and project finance law. The other way is “to commence ‘physical work of a significant nature.’”

    After the House passed its bill, the scramble started “to take delivery of additional equipment from wind turbine manufacturers,” Martin added, and to “search for excavation and road contractors who can get to work on project sites before year end.”

    This means 2015 is likely to look a lot like 2013, Kiernan has said. Because Congress failed to extend the 2012 PTC until January 1, 2013, installed capacity dropped 92% for the year. For lack of new orders, the supply chain started shutting down by mid-2012. Some 30,000 of the industry’s 80,000 jobs were lost.

    The 1-year PTC extension that Congress finally provided for 2013 included, for the first time, the start construction provision. It allowed projects that started construction by the end of 2014 to qualify for the PTC if they were online by the end of 2015.

    Because it took the supply chain most of 2013 to ramp up to full capacity, developers focused on digging holes and safe harboring turbines and transformers.

    The PTC and 2015

    Some 13,600 megawatts of new U.S. capacity were under construction and expected to be online by the end of 2015, AWEA Data and Analysis Manager Emily Williams reported last month. About 4,500 megawatts to 5,000 megawatts were at that time expected to be online by the end 2014, with the balance going into service in 2015.

    The overall impact of the 1-year PTC extension, Susman said, will be the “shift of some of the 2015 activity, where people would have raced to get stuff into the ground, to 2016. It will add a couple to a few gigawatts of incremental capacity to both of those years.”

    “By the middle of 2015,” predicted a wind industry veteran who asked not to be named, “there will be consolidation and workforce reductions in the supply chain and developers and manufacturers will be looking for opportunity outside the U.S. but in this hemisphere.”

    But wind developers are not in scale-down mode right now, Davis said. “We will see an impact in 2015 because what can be pushed through in this short period to the end of the year is limited. But these projects have a life cycle that will take them into 2016.”

    Though prices aren’t going to change much in any 12-month period, several industry insiders said, the downward trend in wind’s cost will continue, from increasing deployment of newer turbines that supply more power at the same cost.

    A bigger impact on prices could come if interest rates rise, Davis said. YieldCosare keeping the cost of capital low but they rely on growth. If growth slows and rates rise, it will push prices up.

    “The supply chain will be busy getting equipment to the projects that make it through,” Davis said. ”That 12 month to 18 month cycle will keep the supply chain busy until about the middle of 2016.”

    The legislation also curtails the investment tax credit vital to builders of under-1-megawatt distributed wind, said Distributed Wind Energy Association Executive Director Jennifer Jenkins. They will turn their focus to rural cooperatives, islanded grids, and wind-diesel hybrid installations.

    The non-PTC environment

    The wind industry is also going to begin thinking about “the non-PTC environment,” Davis predicted.

    Immediately, new power purchase agreements (PPAs) will be completed. “In the uncertainty, nobody was signing a PPA even if the mid-$40s per kilowatt-hour non-PTC price was competitive. Now it is clear there is no PTC and no more mid-$20s PPAs, so people can roll up their sleeves and see what will work.”

    Beyond 2015, solar comes into the equation, Davis said. Solar’s 30% investment tax credit (ITC) is scheduled to drop to 10% at the start of 2017.

    “2016 is expected to be a very busy year for tax equity due to competition from solar companies rushing to complete solar projects before the December 2016 deadline,” Martin explained. “Tax equity investors will have more projects from which to choose than there is available capacity. They will choose the ones that present the fewest tax risks.”

    “The most likely thing is that solar will get a start construction provision for the 30% ITC through the end of 2016,” Davis said. “That will mean a longer period of solar procurement but some of the investment will likely go to wind, on sheer economics.”

    Further out, when both the PTC and the ITC are minimized, he added, “the expectation is that the cost curve for solar will drop faster. Wind may be the more economic choice in the mid-term but that may switch back.”

    Around 2017 or 2018, the Clean Power Plan will come into play as a driver, Davis and Susman agreed.

    The good things coming in 2015

    “The most important thing that is going to happen in 2015 is more direct wind purchasing by enterprise customers like Yahoo,” Susman said. “In installed megawatts, next year will be good but nothing off the charts. But it will be the second year in a row of 500 megawatts to 1,000 megawatts of PPAs from the tech industry and Fortune 100 companies. They are saying to their electricity providers ‘if you won’t provide us wind power, we will get for ourselves.’”

    “The corporates are buying in greater amounts,” Davis agreed. “But it is not a panacea because wind has to be price competitive or they will go elsewhere.”

    While about 7 gigawatts of offshore wind is installed globally and 6.6 gigawatts more are in construction, none of the 14 U.S. projects, representing 4.9 gigawatts of capacity, have started construction. But “this is the year it happens,” Deepwater Wind CEO Jeff Grybowski recently said.

    Both Deepwater Wind’s five turbine, 30 megawatt Block Island Wind Farm off Rhode Island and the 468 megawatt Cape Wind project in Nantucket Sound are expected to have steel in the water by late 2015.

    “2015 looks like it will be the year U.S. offshore wind starts construction,” agreed Southeastern Coastal Wind Coalition President Brian O’Hara. “It is the biggest news likely to happen.”

    Also important in the longer term, O’Hara said, are a just-released set of maps that show new potential for onshore wind in the as-yet undeveloped Southeast. Today’s taller towers and longer blades are already driving interest in North Carolina wind development by Iberdrola Renewables and Apex Clean Energy, he said.

    In pursuit of the just-emerging opportunity, Southern Company subsidiary Georgia Power will announce its choices in February for new resource measurements and pilot project proposals, O’Hara said. It could be the beginning of a new economic opportunity for the region.

    State renewables mandates will continue to drive wind’s growth, especially in wind-rich states where high capacity factors make low PPA prices feasible. In many of those states, EPA pollution regulations are forcing coal plant closures. The combination of the mandates and wind’s competitive, 20-year fixed PPA prices will make it preferable to price-volatile natural gas.

    Conclusion – tax reform?

    AWEA and the wind industry will come back for something better next spring, the unnamed source promised. It will face bolstered resistance from Koch brothers-backed activist groups but it will be able to count on support fromwind-state Republicans, almost all Democrats, and from the diverse business interests that benefit from the tax credit package.

    An upside case, explained Susman, would have Republicans in control of both chambers of Congress reaching across the aisle to show they can move legislation. That could be tax reform that includes a leveling of the playing field for all energy incentives and a multi-year ramp down of the PTC.

    Dropping the PTC to something like 80% of the $0.023 per kilowatt-hour in 2016, 60% in 2017, and zero in 2018 is a deal the wind industry might take in return for longer term certainty. And the administration might accept it as part of its larger climate goals legacy. Or, Susman said, “We might all be here at this time next year going through the same thing on another 3-week extenders package.”

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