PTC extension: Why the stakes are so much bigger this year
AWEA Senior Technical Programs Manager John Dunlop attended the Hannover Messe trade fair in Germany last week, where the question of whether Congress will extend the federal wind energy Production Tax Credit (PTC) was a hot topic. Upon his return, John provided this analysis of why a PTC expiration will be far more damaging to far more people than in the past.
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 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 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 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.
Further endorsements of the wind energy production tax credit.
Related articles:
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NW policy group: PTC helps lead to clean energy future, April 30, 2012
Congressman Thompson, veterans, industry experts call for PTC extension, April 27, 2012
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High-tech component manufacturer calls for PTC extension, April 24, 2012
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AWEA Annual Market Report underscores need for PTC extension, April 13, 2012
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Houston Chronicle editorial supports PTC extension, March 15, 2012
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Kerry, Brown win praise for bipartisan support of PTC extension, February 29, 2012
Wichita Eagle editorial blog endorses PTC extension, February 28, 2012
Daily Oklahoman: PTC extension “makes sense,” February 27, 2012
Bipartisan group of Illinois Representatives supports PTC extension, February 24, 2012
Kansas City Star backs PTC extension, praises Brownback, Moran, February 23, 2012
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Topeka Capital-Journal: Extend the PTC, February 21, 2012
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Major U.S. consumer brands like Nike on extending the PTC: Just Do It!, February 15, 2012
Oklahoma Gov. Fallin urges conferees: Extend the PTC, February 15, 2012
Michigan worker's plea: Extend PTC, help wind power create U.S. jobs, February 13, 2012
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Senate Energy Chairman Bingaman: Act now to save clean-energy jobs, February 9, 2012
Bipartisan letter from Colorado Congressional delegation urges: Extend the PTC, February 8, 2012
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U.S. Chamber of Commerce joins broad range of groups endorsing PTC extension, February 1, 2012
WindTV: Wind power drives commerce in small-town America, January 24, 2012
Denver Post endorses PTC extension 'sooner rather than later', January 18, 2012
WSJ op-ed: 'Want Growth? Try Stable Tax Policy', January 5, 2012
Red State Energy, Red State Jobs, November 29, 2011