By Gerard Wynn
LONDON, March 29 A struggling green energy
industry faces a further drag next year as the proposed renewal
of U.S. wind power tax credits languishes in Congress, adding to
project finance woes and falling subsidies in Europe.
Wind power is feeling pangs as western governments trim
subsidies, whose costs fall on austerity-hit populations,
leading to over-capacity and falling equipment prices.
Congress has delayed renewal of a wind power tax credit due
to expire on Dec. 31, which is in a queue with other tax
proposals awaiting attachment to larger legislation (individual
tax bills don't move on their own, instead attached to bigger
bills Congress is addressing).
The credit is likely to be renewed towards the end of the
year, too late to avoid damaging the 2013 U.S. market.
The United States was the world's second-biggest market for
wind turbines last year, after China. An abrupt fall would see
the world market decline too, according to Denmark-based MAKE
A U.S. slump would probably most affect the wind arm of
engineering conglomerate General Electric, which is
ranked number one or two in the U.S. market compared with third
to sixth globally, according to a range of consultancy
U.S. wind lobbyists had hoped, but were ultimately
disappointed, that the production tax credit (PTC) would get
attached to the recent Payroll Tax Bill. It also looks unlikely
to get attached to the Transportation Bill currently being
debated, they say.
The trouble is that a welter of similar tax proposals await
approval. If one gets attached, supporters of the others tend to
demand the same treatment, which risks slowing a bill's
The most likely outcome for the PTC, which has bipartisan
support, is renewal after the U.S. election in November, shortly
before expiry, according to MAKE Consulting.
Another Danish consultancy, BTM Consult, bases its forecasts
on a PTC renewal this summer.
The two forecasts for the 2013 U.S. market differ by 5
gigawatts, which compares with a U.S. total of less than 7 GW
last year and underlines the importance of timing.
In previous years when the PTC expired, although it was
subsequently renewed, installations dipped by more than 70
percent the following year, according to the American Wind
The PTC allows wind project owners to deduct 2.2 cents from
their income tax on every kilowatt-hour of wind power they
generate over a period of 10 years.
That effectively adds to the revenues of wind power
projects, which coupled with power sales is enough to drive
adequate investment returns.
Some wind project developers don't have sufficient income,
however, to claim the full potential value of the tax credit.
Instead they have used a roundabout route of selling stakes in
their projects to banks and others, who can use a share of the
A previous alternative was the investment tax credit (ITC),
which allowed project developers to obtain upfront capital worth
up to 30 percent of construction costs, rather than per unit of
In the aftermath of the financial crisis, however, the
supply of tax equity investors dried up, and so the U.S.
Treasury stepped in to monetise the ITC with a grant.
Those treasury grants expired last year, but eligibility
continued for investors under certain conditions and if projects
were fully commissioned by the end of 2012.
The treasury grant is simpler, potentially cheaper and
provides up-front cash. Developers prefer it to the PTC, but
there is no prospect for its renewal, and the wind industry is
lobbying for renewal of the PTC where there's a realistic
US VS EU SUPPORT
Wind power support under the tax credit system is more
difficult to predict than for feed-in tariffs in Europe, where
generators get a fixed price per unit of electricity.
The U.S. tax credit system is based on power prices, which
means the overall revenues of a wind project are a function of
wholesale power prices as well as prices of rivals such as
But some European countries are moving in that direction as
they try to increase value for money for consumers.
For example, Britain is proposing that generators of
low-carbon power (wind, solar, nuclear, biomass and so on) only
get the difference between variable wholesale power prices and a
fixed strike price.
And in Italy, legislators are mulling a change in support to
auctioning contracts for solar power, investors say, similar to
an existing system in California.