US Congress passes 5-year PTC/ITC extensions, By Karl-Erik Stromsta, Recharge News, December 18 2015
Jon Dawson/Flickr (cropped)
The US House of Representatives and Senate on Friday approved a massive spending-and-tax package that includes five-year extensions of the wind PTC and solar ITC, giving the US renewables sector a tremendous boost through the second half of this decade.
The legislation now heads to the desk of President Barack Obama, who intends to swiftly sign it into law.
For the US renewables market, the importance of the five-year extensions – running through 2019 for the wind production tax credit and through 2021 for the solar investment tax credit – can scarcely be overstated.
During the 2016-21 period, the PTC extension will spark the creation of an additional 19GW of new wind capacity and 18GW of solar, according to a Bloomberg New Energy Finance (BNEF) analysis.
Without the extensions, the US would have added a combined 66GW of new wind and solar capacity over the coming five years, BNEF says. With them, it will add 103GW.
Industry leaders applauded the extensions, which buy the wind and solar sectors breathing room as they continue to lower their costs and knock down market barriers.
Pattern Energy "will be expanding its project development for the coming year because of the PTC extension", says chief executive Mike Garland. "Having PTCs for five years will allow us to make more supply commitments and build more projects."
Andrew de Pass, chief executive of Miami-based Conergy, says the ITC extension "levels the subsidies playing field for solar when compared with fossil fuels".
"We are thrilled about this passing for the growth of our entire US business, and particularly for us to do more work now in our home state of Florida."
With a five-year extension in hand, the US solar market will be adding 20GW of capacity annually by 2020 – more than it added cumulatively through 2014, according to GTM. The sector will employ more than 400,000 workers by the end of the decade, more than double today's count.
Critically, the extensions will not just lead to bigger renewables markets in volume terms. They will also help to smooth the market over the coming half-decade, avoiding the boom-bust cycles that have become all too familiar to the US wind sector – and would soon have been introduced to the solar sector as well.
Between 2016 and 2017, for example, BNEF expected the US wind market to plummet from 10.8GW to 2.1GW, and the solar market from 11.9GW to 3.4GW.
With a PTC extension, however, the wind market will drop from 9.4GW to 7.7GW in 2016-17, and the solar market will actually grow from 9.1GW to 9.6GW, BNEF predicts.
The extensions represent an historic lobbying win – and something of a late-year surprise – for the US renewables industry. Many in the wind sector would have happily accepted a three-year PTC extension, and many solar companies had expressed optimism about their chances even if the ITC dropped from 30% to 10% in 2017.
The legislation will extend the currently-lapsed wind PTC from the date it last expired – 1 January 2015 – until the beginning of 2020.
Any wind farms that enter construction between now and the end of 2016 will be eligible for the full PTC, an inflation-linked $0.023/kWh credit that pays out over 10 years. Projects will get 80% of the present PTC value if they enter construction in 2017, 60% in 2018, and 40% in 2019.
The PTC already includes so-called “commence construction” language, meaning that wind farms do not need to be completed by the various cut-off dates, but merely in the construction phase. Thanks to the extension, then, PTC-eligible wind farms will be being built well into the 2020s.
On the solar side, the ITC – which offers a tax credit equivalent to 30% of the cost of a PV system – was due to reduce to 10% at the end of 2016. Unlike the PTC, the ITC did not include “commence construction”.
But the ITC will now gain "commence construction" language. And it will be extended from its previously planned expiration date of 1 January 2017 to the beginning of 2022.
The ITC will continue to be worth 30% of a system’s cost for projects that break ground through 2019, before falling to 26% for those that enter construction in 2020, and then 22% in 2021.
Even after 2021 the solar ITC will still be good for a 10% tax credit. The wind PTC, however, will drop to nothing at the end of 2019.
Given the immensity of the spending-and-tax package, there was plenty in there for both Democrats and Republicans to despise.
Key to getting Republicans on board was lifting the 40-year-old US crude oil export ban, which will benefit US oil drillers. To offset that, Democrats demanded a number of environmental provisions, including the renewables tax credits.