Fast-growing wind power market waits out toxic proposal

Rusted wind turbine in desert
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Wind farms could be more difficult to develop and the power harder to sell, if a U.S. House proposal to cut federal tax credits for wind power succeeds.

Wind power buyers and sellers, who signed 4,300 megawatts' worth of contracts this year to date, say they're waiting to see whether a House proposal to slash federal tax credits for wind power will become part of a Congressional tax package before business can resume as usual.

The U.S. wind power market is on the verge of spectacular success or failure, depending on whether a Republican House proposal that targets the industry succeeds or fails.

The House passed a tax-reform bill Nov. 16 that retroactively would cut federal production tax credits for wind power, among other provisions. The bill passed 227-205 along party lines, with all House Democrats and 13 Republicans voting against it. The Senate’s tax-reform bill, which is still pending, would not make any changes to the wind power incentives. 

Buyers and sellers of wind power say that they are hopeful that the Senate tax bill will prevail and no harm will come to the wind industry. But while the market waits for a final outcome, a lot of wind power contracting activity is on hold. 

"It’s something we’re keeping an eye on," said Brian Janous, general manager of energy at Microsoft. "Talking to developers and players in the market, everyone is equally concerned because it would put quite a damper on development of wind power."

In the event of a federal policy change, Microsoft’s current wind contracts would not be affected, but future renewable energy purchases probably would be for solar rather than wind, Janous said. 

Meanwhile, the wind market has been on a roll. Developers have installed nearly 3,000 megawatts of wind turbines this year through September, up 68 percent compared to the same a year ago, according to the American Wind Energy Association. About 14,000 megawatts of wind farms are under construction, and 16,000 more megawatts are in advanced development, which together represent a 27 percent increase in activity compared to the same period last year.

Buyers and sellers have signed about 4,700 megawatts of wind-power purchase agreements this year, outpacing each of the past three years. About one-third of those buyers are corporations and other non-utility organizations, said Hannah Hunt, an analyst at AWEA.

Wind farms generated about 6 percent of U.S. power supplies this year through August, or about 164 million megawatt-hours, according to the Energy Department.

"As wind costs have come down and we’ve seen a strong pipeline of projects under construction or development, we see there’s going to be a steady stream of power purchase agreements in the near term as projects are brought online this year and through 2018, 2019 and 2020," Hunt said. She added that PacifiCorp and other utilities recently have issued requests for proposals for wind power supplies, which will bring more contracting activity.

Wind power prices are as low as $20 a megawatt-hour in some U.S. regions, buyers and market watchers say. That compares to an average price for conventional power of $33.66 a megawatt-hour this year through Nov. 7, according to data compiled by the Energy Department and analyzed by GreenBiz.

The low prices and competition among developers are driving demand. But that could all change with the federal production tax credit, scheduled to drop from 2.4 cents for every kilowatt-hour that is generated, or $24 for every megawatt-hour, for projects that start construction in 2016, to zero for projects that start construction in 2020. Wind farms that qualify for the tax credits can use them for 10 years.

The House proposal would cut the tax credits from 2.4 cents to 1.5 cents, and would change the rules for how projects could qualify. For example, projects would not qualify if there was an interruption in construction, whereas current rules are more flexible.

While the wind industry has lived through federal policies that expire and are replaced with new policies, this time is different. The current wind market has grown quite large on the back of a bipartisan policy that Congress approved in 2015, with expiration schedule for 2020. It’s unfair to businesses, investors and workers to change the policy midway through, industry participants argue.

About $50 billion of wind power investments currently being planned likely would be scrapped if the House plan to slash wind power tax credits were to succeed, according to AWEA.

"The House tax bill, far from being pro-business, would kill over half of new wind farms planned in the U.S. and undermine one of the country’s fastest growing jobs," Tom Kiernan, AWEA’s chief executive, said in a statement earlier this month. 

Wind power developers and buyers say they are likely to move their activity overseas if the House proposal moves forward.

"It could slow down our growth, but not much," Michael Garland, chief executive of wind power firm Pattern Energy, said earlier this month during a conference call with analysts. "Over 60 percent of our growth is coming outside the U.S." 

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