Tax Law Provision Driving Wind Farm Development
The expiration of the federal production tax credit for renewable energy, scheduled to take effect at the end of 2012, is spurring a boomlet in the construction of wind farms.
The federal production tax credit (PTC), an important economic incentive for developers of renewable-energy facilities, provides wind-farm owners with a 2.2¢/kWh tax credit for wind power generated during the first 10 years of a facility's operation. However, the legislation under which the PTC was most recently extended—the American Recovery and Reinvestment Act of 2009—includes a requirement that wind farms be operational by Dec. 31, 2012, to qualify for the tax credit.
The stimulus bill also permits a wind- farm developer to take a grant equal to 30% of the capital cost of its wind farm in lieu of the PTC. To qualify for the grant, however, construction of the facility must begin by Dec. 31, 2011.
Each time the PTC is close to expiring “there's a spike in activity, then [wind-farm construction] falls off a cliff,” says Frank Maisano, an energy specialist at the Washington, D.C., office of Bracewell & Guiliani, an international law firm active in U.S. energy matters. This time around, he says, it is not at all certain the PTC will be extended.
Past Market Declines
Elizabeth Salerno, director of industry data at the American Wind Energy Association, says that when the PTC was allowed to expire temporarily at the end of 1999, 2001 and 2003, the amount of wind capacity built the following year dropped by 73% to 93%. She says wind manufacturers already are seeing a sharp decline in orders for wind turbines to be delivered in 2013.
“We have seen a significant increase in [wind-power solicitations] and customers wanting to begin work,” says Jerry Grundtner, vice president of project development at Mortenson Renewable Energy Groups, a unit of Mortenson Construction of Minneapolis.
Mortenson, whose portfolio of wind- farm projects now tops 100, currently has 16 jobs under construction in the sector. Grundtner says that Mortenson anticipates handling the boomlet with relative ease. “We expect 2012 to be a significant installation year for wind energy but not as large as 2008. In years past we have constructed 20 projects simultaneously, so we are not concerned about capacity issues,” he says.
The ABCs of IOUs
Investor-owned utilities (IOUs), municipal utilities and electric cooperatives all have been racing to sign power purchase agreements (PPA) for wind power—or, in the case of some IOUs, to construct wind farms of their own so they can benefit from the PTC.
