Uncertainty Over Tax Credits Causing Turmoil In Renewable Energy Sector

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Uncertainty over the future of the wind production tax credit and the solar investment tax credit—and Congressional inaction on both matters—could pose a serious challenge to development in the renewable energy sector.

Wind energy had a huge year in 2012, with 13,128 megawatts (MW) of new wind capacity installed, but has failed to get anywhere close to matching that number since. The fact that the wind production tax credit (PTC) expired last year might have something to do with that.

Wind energy developers only need to have made minor investments by the 2013 deadline to qualify for the tax credit, so there are still a number of new installations in the works, and 2014 has so far seen a fair amount of growth in wind energy capacity. But that will not be the case for long if Congress doesn't act.

According to the American Wind Energy Association's latest quarterly market report, some 711 turbines capable of producing 1,254 megawatts of wind energy were installed in the US during the first three quarters of 2014, which is more than in all of 2013.

But while there are more than 13,600 more MW of wind capacity currently under construction, that number is expected to drop off sharply as projects are brought online and fewer new projects are started due to the expiration of the wind production tax credit (PTC).

Rumor has it that one of the Senate's top priorities after the November elections will be “passing a bill to retroactively reinstate and extend a series of lapsed federal incentives, among them the wind energy industry's crucial production tax credit.” But there are a number of factors, including the outcome of the elections themselves, that could change that, especially if Republicans seize control of the Senate.

The solar investment tax credit (ITC) doesn't expire until the end of 2016, but looming uncertainty over its future has already caused plans for at least one major solar installation to be scrapped.

Last month, BrightSource Energy and Abengoa Solar officially gave up on their Palen solar project, a 500-Megawatt concentrating solar plant outside of Indio, CA. The project wasn't likely to be completed by the end of 2016, the companies said, and thus would not qualify for the tax credit. (It's worth noting that the project had a whole host of other problems, including threats to migratory birds and historic trails and landscapes.)

The solar industry's financing model largely rests on the ITC, which allows 30% of development costs to be reimbursed. After 2016, that reimbursement is reduced to 10%, which, Bloomberg reports, is expected to cause quite a shakeup in the industry, in addition to a serious slowdown in development:

U.S. solar development will almost double by 2016 to 9.6 gigawatts, up from about 5.1 gigawatts this year, according to Bloomberg New Energy Finance. After the ITC is reduced, the London-based research company expects new construction to drop to about 4 gigawatts in 2017 and take six years to recover.


So far, there have been no signs that Congress is poised to act on the solar investment tax credit. Greentech media reported in July that “the solar industry seems to be facing an uphill struggle, as there appears to be no clear consensus among legislators that the expiration date should be extended.”

It's not all bad news for solar, however. Distributed solar, i.e. solar panels on residential and commercial rooftops, is doing a bit better than industrial-scale projects like BrightSource and Abengoa's Palen. According to a new report from the Department of Energy, prices for photovoltaic (PV) systems have been declining by 6-7% per year since 1998, with a 12-15% price reduction between 2012 and 2013. This puts PV systems on pace to meet the goal of the DOE's SunShot Initiative, which is to reduce the price of distributed solar 75% compared to 2010 prices.

More and more, we're seeing that renewable energy makes economic sense in addition to reducing global warming-causing carbon emissions. Congressional inaction on tax credits for renewable energy comes even as “Once-stodgy electric utilities are moving into new green businesses that they have long shunned, hawking solar power and products like super-efficient light bulbs to get a piece of the action in the clean energy boom,” according to Politico.

Two new “technology roadmap” reports recently released by the International Energy Agency show that the sun could be the single biggest source of energy, providing nearly 30% of the world's electricity by 2050, but warned that “clear, credible and consistent signals from policy makers” are required to make it happen.
 

Image Credit: Windturbine farm at the sunset by Andrzej Wilusz / Shutterstock.com

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