Fiscal cliff deal saves wind energy subsidy

A generous government subsidy for wind energy, which was due to expire at the end of the year, was saved at the last minute by the fiscal cliff deal reached between President Obama and congressional Republicans.  The Production Tax Credit (PTC) will be extended by yet another one year increment, applying to projects initiated through the end of 2013.  The inclusion of the PTC in the fiscal cliff deal was part of a broader package of renewable energy tax incentives, including provisions for plug-in electric vehicles, and a suite of credits and favorable tax treatments for biofuels producers.

The PTC is a targeted government subsidy of 2.2 cents per kilowatt hour for wind energy projects, which bolsters returns for investors at a time when wind is not necessarily at grid parity.  As I wrote about last August, its pending demise was the source of much political chatter and partisan wrangling during the last election cycle.

Indeed, wind producers who rely on the PTC for their business models’ viability were facing a bit of a fiscal cliff of their own.  With their tax credits set to expire at the end of 2012, many turbine producers had begun laying off workers, most notably the German giant Siemen’s.  Large wind projects currently in the pipeline were put on hold.  Indeed the New York Times described the industry as “withering” under the threat of losing its subsidies.

So the fate of the wind industry has paralleled that of the US economy as a whole: facing the uncertainty of the fiscal cliff, investment slows down; and the deal which averts the cliff can allow some semblance of normalcy to return.  The package actually expands the PTC, allowing it to apply not just to existing projects but to those whose construction commences in 2013.  This has the potential to touch off a building boom, as producers seek to take advantage of benefits with the expectation that they may not stick around forever.

More likely, however, is that uncertainty will continue in the wind industry.  Most utility-scale wind projects take around 2 years to develop, some taking much longer.  With subsidy funding apparently coming in one year cycles, it will be difficult for producers to anticipate the fiscal situation when a project comes online.  Simply the threat of losing the subsidies did what may be lasting damage to the industry, as layoffs and production halts may become a way of life in an industry whose boom-and-bust cycle is directly tied to the whims of Congress.  For now, however, the turbines are spinning and the construction can continue, as the wind industry’s government subsidies are safe for another 365 days.