The wind industry blew a tentative sigh of relief last week.
The U.S. Senate’s recently released tax bill preserves key wind construction tax credits that are at risk in the House’s version, which threw the industry into a tailspin when it was released at the start of November as analysts forecast a deep cut in new wind power.
While waiting for the two bills to be meshed, a chilling effect has swept over the industry as groups remain apprehensive. About $50 billion of private investment, including $1.1 billion of projects in the pipeline in Colorado, and the jobs tied to that investment are now on shaky ground.
“We are supportive of tax reform that results in a simpler, more efficient tax code, and we commend Congress for working toward that goal,” said Frank Prager, Xcel Energy’s vice president for Policy and Federal Affairs. “The power industry is the most capital intensive in the country, and we plan to continue advocating for the right tax policy that will help us provide our customers with clean, reliable and affordable energy.”
Xcel Energy is building a $1 billion venture called the Rush Creek Wind Project that would generate 600 megawatts of power. Denmark-based Vestas, which has four manufacturing plants in Colorado, is building the 300 turbines for the project. Colorado’s 3,029 megawatts of wind provides 17 percent of the state’s electricity, which is the equivalent of powering 670,000 average American homes, according to American Wind Energy Association. There are 7,000 wind energy-related jobs in Colorado.
The heart of the concern is the Production Tax Credit, known as the PTC. It’s a 10-year tax credit for wind construction that started in 1992. In 2015, the wind industry supported a bipartisan move to phase out the PTC, starting in 2016 until it eventually drops out in 2020.
To qualify, companies can either start construction or spend 5 percent of the end total construction costs as long as the project is finished in four years. The House bill, if enacted, would retroactively change the ways projects qualify for credits. Companies that put forth 5 percent of the costs, typically done by purchasing turbines, would no longer qualify. Additionally, construction would need to be continuous, which the industry interprets as not allowing for pauses.
Many projects that already qualified for the full 100 percent tax credit could lose eligibility. The would have to requalify at a stepped-down rate of 80 percent — if they can get their projects to qualify in the last two months of 2017. If not, they would be shooting for 60 percent in 2018 or 40 percent in 2019.
Additionally, the bill lowers the value of the credit back to $15 per megawatt hour, the level set up in 1992, instead of its current inflation-adjusted $24 per megawatt hour.
The House bill says the changes to the PTC would increase revenues by $12.3 billion from 2018 to 2027.
But the changes would also cut the number of gigawatts of energy forecast by half, dropping from 38 gigawatts through 2020 to 19 gigawatts or 20 gigawatts, said Alex Morgan, a wind analyst for Bloomberg New Energy Finance. Job losses from the loss of projects would follow.
Morgan said it’s not likely that the language in the House bill will go through as is, especially since the Senate bill preserves the current PTC requirements. But it does create uncertainty for developers who want to qualify by the end of 2017.
“While this language is being hashed out and exactly what happens to the PTC is being hashed out, anyone who is making decisions for the end of 2017, they want the House and Senate decisions to be made quickly,” she said.
Tom Kiernan, CEO of the American Wind Energy Association, said if the House language were to become law, it would set a dangerous precedent of retroactive changes that could impact other industries down the line. He commended Colorado Sens. Cory Gardner and Michael Bennett, for as well as Rep. Mike Coffman, for supporting the effort to keep the PTC as is.
“(Retroactive changes are) the type of thing, in all candor, the United States doesn’t do,” Kiernan said. “We are an economy, government and rule of law that people trust. A place you can make investments and have confidence in them. This type of retroactive tax change would undermine the confidence in our economy and investments.”