The U.S. wind industry is powering up once again after Congress extended a critical tax credit that wind companies say will save tens of thousands of domestic jobs and allow more clean energy projects to ramp up this year.
About half of the sector's 75,000 jobs in the United States had been expected to disappear if the wind production tax credit had been allowed to expire at the end of last year, according to trade group the American Wind Energy Association.
"There will be a lot of activity that wouldn't have otherwise occurred," said David Burton, an attorney with Akin Gump Strauss Hauer & Feld who works on the tax aspects of financing renewable energy projects.
The extension and several other clean energy tax breaks came out of a Senate Finance Committee "tax extenders" bill in August and was included, along with a host of other business tax incentives that industries had been pushing for all year, in the deal to avert the "fiscal cliff."
The tax break provides an income tax credit of 2.2 cents per kilowatt hour for electricity produced by utility-scale wind turbines, helping it compete with power generated from cheap fossil fuels like coal and natural gas.
Importantly, the credit was changed to allow project developers to claim it when they begin construction, rather than only once turbines are up and running. It addresses the stop-start nature of the tax credit and takes into consideration the two years it can take to develop a wind farm.
"That's a huge difference," said Lance Markowitz, a senior vice president in the leasing and asset finance division of Union Bank, a unit of Mitsubishi UFJ Financial Group.
Markowitz added that he knows of several wind projects that will go forward that likely would not have without an extension of the tax credit. However, he cautioned that the industry still faces challenges such as weak power prices and an environment in which many utilities are close to fulfilling their state mandates for renewable energy generation and therefore are no longer required to buy more clean power.
The last-minute extension has already taken a toll on the industry, according to AWEA's interim chief executive, Rob Gramlich, who said some of the industry's jobs would not be saved.
"Some of the damage was certainly done," he said.
Manufacturers like Denmark's Vestas Wind Systems A/S, for instance, decreased their U.S. workforce in 2012 in anticipation of the tax credit expiring.
"Our order intake, like everyone else in the industry, saw a decrease in 2012," said Andrew Longeteig, a spokesman for Vestas' North American operations.
BIG HELP FOR SMALL GREEN INDUSTRIES
Allowing projects to claim the tax credit when they begin construction will be a big boon to less developed technologies like geothermal and biomass.
"They are less developed so tend to be looked at by investors as being riskier," said Michael Bernier, a senior manager at Ernst & Young who specializes in renewable energy tax credits. "Providing that certainty of 'OK, we're going to get this tax credit,' that helps you mitigate your risk."
The change could spur about $4 billion of new investment in geothermal projects, said Karl Gawell, executive director of the Geothermal Energy Association.
It remains to be seen how the federal government will define projects "under construction" and able to qualify for the tax credit. A popular solar power incentive, before it expired, allowed developers to qualify if they incurred five percent of the total project costs even if actual construction had not started.
"The Obama administration was very supportive of those guidelines and will push hard for those same guidelines," said Burton.
The bill to avert the fiscal cliff also included extensions of tax credits for electric vehicle chargers for individuals and businesses and electric motorcycles.