What the PTC’s Expiration Means for Leading Companies
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by John Powers on 01/15/2014
Since 1992, the U.S. government has sought to incentivize clean energy development through the tax code, specifically through a Production Tax Credit (PTC). In its most recent iteration, the PTC allowed qualifying clean energy facilities (mostly wind farms) to write off 2.3 cents in taxes for every kilowatt hour (kWh) of electricity they produced. With wholesale power rates ranging from under 2 cents/kWh up to 10 cents/kWh, adding 2.3 cents from the government was a non-trivial contribution to the financing of a wind farm. Better yet, the PTC worked: in 2013 some 35% of all new capacity installed in the U.S. was wind power (second only to natural gas) and in 2012 it was over 50% wind.
The issue with the PTC has always been the uncertainty created by a Congress that allows it to expire every year or two. The PTC expired in 2010, was renewed for 2 years, expired again in 2012, and was then renewed for only a single year more. December 31, 2013 marked the last day that new wind projects in the U.S. could qualify for the PTC--at least until/unless it is renewed again. Most wind industry participants would gladly trade a smaller incentive, or an incentive that phases out over time, for some long-term certainty, something over at least a five or 10 year time frame.
With improving wind technology and growing transmission infrastructure, 2013 saw record numbers of utilities signing wind power purchase agreements (PPAs) above and beyond any government mandate. In many cases, wind (with the help of the PTC), was simply the least-cost electricity option--and utilities weren’t the only ones to notice. Many corporate ventures have realized that electricity is one of their largest costs and biggest risks, not to mention one of the most important ways to reduce environmental impact and an organization’s carbon footprint. It’s becoming harder and harder to find a major U.S. corporation without an electricity [i.e. greenhouse gas] reduction goal.
The desire to reduce their corporate environmental footprint, coupled with the low cost and long-term cost certainty of wind, has led a host of corporations to look seriously at signing wind PPAs themselves. Companies like Google, Becton Dickinson, and Microsoft have recently signed long term PPAs with wind farms, and dozens of others are hot on their heels. For these forward-thinking companies, the expiration of the PTC comes at a bad time. It can take months to convince the CFO of a Fortune 100 company to invest in a 20-year PPA, and the PTC expiration is likely to derail the conversation completely.
Here’s hoping that Congress can come around to the same position all major corporations have taken on climate change and provide a reasonable, long-term extension for the wind power PTC. This would be a win for the environment, the wind power industry and, yes, corporate America.
John Powers is LEED AP and Vice President of Business Development for Renewable Choice.