Project Development, Wind Power

One-Year PTC Extension Extinguished

A provision to extend the Production Tax Credit (PTC) for one year was dropped from the final form of the US$350 billion tax-and-spending package – just approved by both Houses of Congress. The short-term PTC extension, which was contained in an earlier Senate version of the bill, is one of about a dozen expiring tax credits that did not make it into this particular tax bill, according to the American Wind Energy Association (AWEA).

Washington, D.C. – May 27, 2003[SolarAccess.com] Just two days before AWEA’s national wind power trade show kicked off in Texas on May 18, the one-year extension was passed by the Senate, sending ripples of anticipation throughout the industry. While AWEA holds a multi-year extension to the PTC primary in its legislative goals, the one year extension would have hedged against the possibility that a comprehensive energy bill including a PTC extension might not be signed before the end of the 2003 when the credit is set to expire. Under present law, an income tax credit of US1.5 cents/kWh (adjusted annually for inflation) is allowed for the production of electricity from qualified wind energy facilities, “closed-loop” biomass facilities and poultry waste facilities. The current value of the credit is US1.8 cents/kWh of power produced. Many in the industry believe the tax credit is essential to continue wind power’s strong momentum. The cost of wind energy has decreased more than 80 percent over the past 20 years and currently averages under five cents per kWh with the PTC. “We’re confident that we’re going to get this credit extended,” said AWEA’s Legislative Director, Jamie Steve. “This is not an enormous setback.” While Steve is confident a multi-year extension of the PTC will be passed in the upcoming comprehensive energy bill, the wind industry may be in for some down months as investment tends to slow to a crawl as the PTC expiration approaches. This was exactly what the one-year extension would have avoided. A three-year extension of the PTC has been approved by both the U.S. House and Senate as part of comprehensive energy policy but that does little to quell the air of uncertainty in the industry and the investment community. Historically, six to eight months before the tax credit expires, financial lenders hesitate in providing capital for wind projects because of the uncertainty created by the impending expiration on the credit, according to AWEA. A rush to complete projects before the deadline can lead to added costs resulting in higher electricity prices per kWh. Despite strong bi-partisan support in the past, PTC extensions have failed to become law before their termination deadlines since they were wrapped up in larger, contentious energy bills. This was the case in 2001 when comprehensive energy bill legislation including a PTC extension stalled – and the industry with it. This lead to a significant drop in new installed capacity. If there is a ‘silver lining’ for the wind industry in the President’s tax package, it is that it will both extend the current 30 percent bonus depreciation provision until 2005 and boost the provision to 50 percent, according to AWEA. “This bonus is very important to the wind industry,” Steve said. Bonus depreciation is available to any business that buys new equipment, including wind turbines. It was created in an effort to boost the economy in the aftermath of the September 11 terrorist attacks and was supposed to be temporary. The PTC will not be affected by the cut in the dividend tax that was a key component of the Bush Administration’s tax and spending goals. President Bush is expected to sign the comprehensive bill (the “Jobs and Growth Reconciliation Act of 2003”) into law this week. Jesse Broehl can be reached at [email protected]