Friday 22nd August 2014


July 22, 2014

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Wind Watch

What will happen to US wind after 2016? That is the question that lingers unanswered as Republicans and Democrats in Congress fight over the wind production tax credit (PTC).

The wind PTC is a subsidy regime that supports the construction of wind farms. It expired at the end of 2013 and, despite plans from the Democrats to reintroduce it earlier this year as part of a tax extenders bill, this was scuppered by Republicans in Congress.

There is no sign of the Republicans backing down. On 13 August, Kansas Congressman Mike Pompeo led a group of 54 members of Congress in calling for a permanent end of the PTC. It called the PTC one of the “most anti-competitive and economically harmful tax provisions”, and said even a one-year extension would cost US taxpayers around $13.4bn.

This makes the 2013 edition of the US Department of Energy’s ‘Wind Technologies Market Report‘, which was published earlier this week, more interesting than most. For one thing, it shows how split opinion is about what will happen to the PTC and what this would mean.

Consultancies IHS and MAKE respectively forecast that 8.4GW and 5.1GW of extra wind capacity would be added in 2016, with both assuming that the PTC would be extended for 2016. But Bloomberg New Energy Finance and Navigant based their forecasts, of 3.6GW and 2.8GW added respectively, on the assumption that there would be no PTC extension.

In May, we said we expected the PTC to be extended for 2016. Given subsequent battles in Congress we now think this is less likely — although, like those working in the US, we simply don’t know. Uncertainty like this can never be good for the market.

But our overriding feeling from the energy departments 96-page report is that there are actually a lot of reasons to be positive, PTC or no PTC.

The funding of projects held steady in 2013 due to the low level of activity, but has picked up this year. Investors appear confident that sufficient capital will be available to finance projects, and several investors — including NRG, Pattern and NextEra — have spun-off yieldcos as a way to raise capital from public equity markets.

Wind energy is also looking more competitive. The cost of energy in wind PPAs reached an all-time low of $25/MWh nationwide, compared with $70/MWh in 2009. This must be good news for wind as it is in competition with other energy sources including shale gas.

And the cost of turbines has also dropped by around $600/kW since 2009 and 2010, to now around $1,630/kWh, although this was partly due to the limited number of projects that were completed in 2013. Again, this can only help the wind sector to compete.

We don’t believe the US wind sector is in the midst of a boom, but this report also shows that it isn’t all doom and gloom.

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