Congressional inaction was a big issue In discussions this week at Hannover Messe. Any U.S. or foreign person who knew about U.S. politics knew about the PTC problem. As I discussed the issue with others, it became clear that the impact will be much worse than in the early part of the last decade, when Congress failed to take timely action on three occasions and allowed the credit to temporarily expire.
New wind farm installations and jobs in the wind turbines industry dropped by large percentages all three times, and we’re looking at another large percentage turndown in 2013. If we see 10,000 megawatts (MW) of new wind power generating capacity installed in 2012 and only squeak out 2,000 MW in 2013 (no guarantee), that would be an 80% reduction in installed value, similar to the impact of the previous inaction.
However, it’s important to understand that an 80% reduction in 2013 will have a MUCH greater financial impact than an 80% reduction in 2004, the last time Congress failed to extend the PTC.
For example (very approximate numbers):
Value of installations in 2003 (1800 MW x $2 million/MW): $3.6 billion
Value of installations in 2004 (500 MW x $2 million/MW): $1 billion
NET reduction in 2004: $2.6 billion
Value of installations in 2012 (10,000 MW x $1.8 million/MW): $18 billion
Value of installations in 2013 (2,000 MW x $1.8 million/MW) $3.6 billion
NET reduction in 2013: $14.4 billion
Thus, the magnitude of the reduction in installed value compared with the previous year will likely be more than five times greater in 2013 than in 2004.
Furthermore, the impact on AMERICAN jobs will be even more dramatic. AWEA estimates that only 25% of the $2.6 billion reduction in 2004 was of domestic content. Therefore, the fiscal impact to U.S. jobs was arguably about one-fourth of $2.6 billion, or $650 million.
Since 2004, as has been reported here on many occasions, the U.S. wind power industry has experienced dramatic growth, and the domestic supply chain for wind turbines and their components has expanded even more rapidly, so that currently about 60% of the value of new turbines is domestic. This means that the financial impact on U.S. suppliers will be 60% times $14.4 billion, or $8.64 billion, or more than 13 times the impact in 2004.
In short, the remarkable success of the Production Tax Credit in creating a new U.S. manufacturing industry with tens of thousands of new American manufacturing jobs has dramatically increased the need for serious and urgent Congressional action to provide stable tax policy for the wind power industry.
The PTC provides an income tax credit of 2.2 cents per kilowatt-hour for the first 10 years of electricity production from utility-scale turbines. It is set to expire on Dec. 31.
A House bill seeking to extend the PTC has 93 cosponsors, including 21 Republicans, while a Senate bill to extend it was introduced March 15 by seven Senators, including three Republicans. PTC extension efforts have received the endorsement of a broad coalition of more than 370 members, including the National Association of Manufacturers, the American Farm Bureau Federation, the Edison Electric Institute, and the Western Governors’ Association. A PTC extension also has the support of the U.S. Chamber of Commerce, the National Governors Association, and the bipartisan Governors’ Wind Energy Coalition, which includes 23 Republican and Democratic Governors from across the U.S. A PTC extension has been endorsed by a number of newspapers across the country, including the Houston Chronicle, The New York Times, the Denver Post, and the Daily Oklahoman.
John Dunlop, Sr. Technical Programs Manager, www.awea.org/blog/