What will happen to US onshore wind after PTC phase-out?

It is three years since the US Government surprised the wind sector by approving a five-year extension and wind-down of the vital production tax credit (PTC). With only 12 months left for projects to win backing in that wind-down period, it’s time for us to look at what comes next.

First, here are the basics. Onshore projects that won 80% PTC support in 2017 have to the end of 2021 to be commissioned, while those that won 60% PTC support this year have until the end of 2022 to complete. Meanwhile, projects that win 40% PTC support in 2019 are due to come online by the end of 2023. No PTC support is due to be awarded after next year.

In practice, this means we’ve seen a construction boom in the US in the last couple of years as developers have pushed to construct projects by 2020 and thereby access 100% of PTC support. That boom is coming to an end – but is the cliff edge as PTC support is reduced?

Analysts disagree on what will happen after this. At an American Wind Energy Association conference in May 2018, some warned that US wind would enter a ‘valley of death’ after the PTC phase-out. The phrase was coined by IHS Markit’s Max Cohen.

But others are more optimistic. Last month, Chris Brown from Danish turbine maker Vestas predicted that demand for turbines in the US would peak in 2020 but refuted the idea of a ‘cliff’. He predicted that demand would decline slightly post-2020, and then rise again.
We can see Brown’s argument. The growth of US wind is increasingly driven by the fact that it is cost-competitive and cleaner than many of the alternatives. Even so, we do see reasons why those in the US wind sector would be concerned about the prospects for the sector after 2020 – and not just because of the PTC phase-out.

One reason is the Trump administration. Despite his anti-renewables rhetoric and support for fossil fuels, his government has thus far left the US wind industry largely undisturbed.

This has been good for wind. The US industry is driven more by policies at state than federal level, which has given states such as California and Texas the freedom to pursue ambitious renewable energy policies. However, Trump has not actively done anything to help US wind industry either and, without the cushion of the PTC, the industry could feel his lack of support more than before. Well, assuming he gets to the end of his first term and wins a second.

There is also uncertainty around the US economy as we approach 2020.

In recent weeks, we have seen a growing number of analysts come out and say that 2020 will mark the start of a US. You can’t argue against the history of economic cycles.

What then? Well, we know recessions reduce energy demand. If that falls then it will make it tougher for those looking to build wind farms, and will mean that wind projects are forced to take market share from existing energy sources. An energy market that is not growing is not good news for the wind sector and fighting vested interests in fossil fuels will be tough.

And, of course, there’s the PTC itself. Even those who are optimistic about the future for US wind acknowledge that the PTC wind-down will probably end up with a short-term decline in construction. As Wood Mackenzie Power and Renewables pointed out in an August 2018 report, the delayed phase-out of solar PV subsidies means that wind energy will be forced to compete on an uneven playing field with solar for much of the 2020s.

With so many variables at play, it’s impossible to predict exactly what will happen, but the health of wind – and the potential impact on jobs – is an obvious concern.

AWEA has said that “because the PTC has been successful in helping establish a reliable, competitive domestic wind industry, wind will continue to expand capacity” after it is phased out. We agree. We’re optimistic for US wind. But without the PTC, it won’t always be easy.