US industry benefits from surprise ptc extension

The five-year extension of a key production tax credit in President Obama’s second term took the US wind industry by surprise. Never before had firms enjoyed such long-term clarity when making their investment decisions.

But, for surprise value, the extra one-year extension of the PTC confirmed by the US House of Representatives on 17th December has trumped even that.

We don’t think anyone can be in doubt about President Trump’s views on the sector – “I never understood wind,” he opined just before Christmas – and so we didn’t expect an extension with him in charge.

Even more surprising is that companies in the sector have been saying publicly for the last five years that another extension of the PTC wasn’t required. As recently as September we were saying that the reluctance to lobby for more PTC support felt like wind was making its life more difficult, in sharp contrast to lobbying by US solar for an extension of the Investment Tax Credit.

This is a notable exception to the adapt that ‘If you don’t ask, you don’t get.’

The details have proved intriguing too. Since 2016, the PTC has been cut by 20 percentage points each year to 40% for projects where construction started in 2019, with the PTC due to expire for new projects from 1st January 2020.

Now, as the result of the 2019 Extenders Bill, companies will be able to qualify for a 60% PTC rate for projects where construction begins in 2020.

This is undoubtedly good and will spark a wave of onshore wind construction at a time when investors were fully prepared for the PTC to wind down.

This will help manufacturers and developers to cope with headwinds, including rises in material prices as a result of Trump's trade wars with China.

It is also likely to prompt howls of dismay from Trump’s supporters and those in the fossil fuels sector who will argue that onshore wind doesn’t need new support. We have some sympathy, believe it or not, as the PTC was intended to support a new industry and has done a great job in doing so. But we can’t feel guilty about wind receiving support while fossil fuel firms do too.

To discuss the impact of this PTC extension on US wind, join us at Financing Wind North America in Boston this May. Click here for details

However, it won’t all be smooth sailing.

The fact that the PTC is rising to 60%, rather than staying at 40%, is likely to cause an administrative headache at developments where construction started in 2019. This will force many developers to make a case that construction on their projects actually started in 2020, not 2019, so they can take advantage of the higher PTC on offer. This will cause frustration.

The Extenders Bill also ignored lobbying for PTC support for energy storage and offshore wind, and for the ITC extension we mentioned earlier. This shows that onshore wind still enjoys strong support in the US government, but may dampen the growth of these nascent industries.

And the fact is that this one-year extension might also herald a return to the era of short-term PTC extensions followed by annual cliff edges.

Uncertainty is a hallmark of the Trump administration though, and experienced US wind professionals will remember enough of the pre-2016 era to steer the sector through these times, so we don’t see too much cause for concern. Only a change of president will change this.

But overall, we think this latest extension should underline Trump’s reputation as an unexpectedly pro-wind president.

Yes, he’s made a lot of noise about hating the industry but hasn’t followed up with the harsh and damaging policies that he could have, with the result that US wind has continued to grow strongly during his tenure.

This bears out our assessment from early 2016 that he was the least worst Republican for wind, and this latest PTC extension is the cherry on top.

So thank you President Trump. You don’t understand wind, you certainly don’t love it, but you haven’t done the damage that you could have. Sometimes that’s the best we can hope for.

NEWS IN BRIEF

DOMINION PLACES 2.64GW OFFSHORE ORDER

Top of Form

Dominion Energy has picked Siemens Gamesa as preferred supplier for its 2.64GW Virginia Offshore Wind project. This is the largest offshore wind farm currently planned in US waters, and is due to complete by 2026. Read more

Bottom of Form

DUKE ENERGY SWITCHES ON 200MW TEXAS PROJECT

Duke Energy Renewables has switched on its 200MW Mesteño wind farm in Texas. The scheme is made up of 56 3.6MW Vestas turbines. Read more

TAIWAN CUTS OFFSHORE FEED-IN TARIFF BY 7.6%

The Taiwanese government has cut the feed-in tariffs by 7.64% for offshore wind farms where construction starts in 2020. It is also looking to support 10GW of new offshore wind capacity between 2026 and 2035. Read more

VESTAS GUNS FOR CARBON NEUTRALITY BY 2030

Vestas is looking to reach carbon neutrality across its global footprint by 2030 so it can meet growing sustainability expectations. Read more

PATTERN STARTS WORK ON 271MW GULF WIND

Pattern Energy has closed financing and started building the repowering of its Gulf Wind facility in Texas with 118 Siemens Gamesa turbines of 271MW. Gulf Wind has a 20-year power purchase agreement with Austin Energy. Read more

BROOKFIELD GAINS GREEN-LINKED LOAN

Brookfield Renewable Partners has secured a revolving credit facility with BNP Paribas. The facility is a sustainability-linked loan, which incorporates a pricing mechanism linked to Brookfield's performance on ESG issues. Read more

MING YANG AND CTG IN OFFSHORE TIE-UP

Chinese turbine maker Ming Yang and China Three Gorges have signed a framework agreement to collaborate on offshore wind projects. Ming Yang recently started work on a 10MW typhoon-proof offshore turbine platform.