wind projects that use large turbines—greater than 100 kilowatts (kW)—are
eligible to receive federal tax incentives in the form of production tax
credits (PTC) and accelerated depreciation. Originally established in
1992, the PTC has played a role in the evolution and growth of the U.S.
wind industry. Under existing law, wind projects placed in service on or after January
1, 2013, will not be eligible to receive the PTC incentive. Industry proponents
are advocating for an extension of PTC availability, citing employment,
economic development, and other considerations as justification for the
extension. While a PTC extension may improve the prospects for U.S. wind
development and manufacturing next year and beyond, the wind industry is
influenced by a number of other factors. It is uncertain how the near- or
long-term availability of the PTC incentive—in isolation of changes to
other market factors—would either grow or sustain current wind development
and manufacturing levels.
For 2012, the pending expiration of the wind PTC is actually creating a
short-term surge in wind project development and related investment and
employment. Wind installations in 2012 are expected to range somewhere
between 10 to 12 gigawatts (GW)—a record year for the industry. However,
market estimates for new installations in 2013 range from 1-2 GW if the PTC
expires and 2-4 GW if the PTC is extended. Limited market activity in 2013
is partially explained by the uncertain nature of the PTC, which results
in reduced manufacturing orders and development activity as developers and
investors wait for official policy direction. Wind installation projections
for 2014 and beyond vary with the assumed availability, and duration, of PTC incentives.
However, all projections reviewed for this report expect annual U.S. wind
turbine demand to be less than the existing U.S. turbine manufacturing
capacity—approximately 13 GW per year.
Other factors that can affect wind development include (1) state renewable
portfolio standards (RPS), (2) U.S. electricity demand growth, and (3) the
price of natural gas. State RPS policies have been the primary demand
creator for wind projects, in most cases, by requiring certain utilities
to source a percentage of their retail electricity sales from renewable
generators. Market analysis indicates that incremental RPS-driven demand
for all sources of renewable power is estimated to be 4-5 GW annually
until 2025. Additionally, U.S. electricity demand growth is expected to be
modest for the foreseeable future, meaning that there will likely be modest
demand for new electric power capacity. Finally, the price of natural gas
can also influence wind markets. Low natural gas prices can erode the
economic competitiveness of wind electricity, while high natural gas
prices can result in opportunities for wind to compete economically without the
PTC. Current estimates from the U.S. Energy Information Administration
(EIA) project sustained low, but increasing, natural gas prices for the
next several years.
By the end of 2012, Congress will either allow the PTC incentive to expire or
it may choose to extend or modify the incentive. Should Congress decide to
extend the availability of wind PTC incentives, the duration (e.g., two
years, four years, permanent) of such an extension will likely be part of
the policy debate. Generally, the shorter the extension the greater the
short-term economic and employment activity as developers and investors
accelerate development plans in order to qualify for the PTC incentive.
However, this development acceleration is likely to reduce future RPS-driven
demand. A permanent PTC is also a policy option that may be considered, and EIA
estimates indicate that such a policy may actually reduce near-term wind
capacity additions, with annual installations peaking at 4 GW in the 2030
timeframe. Higher natural gas prices, more aggressive RPS policies, and
increased U.S. electricity demand could change this outlook.
Date of Report: June 20, 2012
Number of Pages: 19 Order Number: R42576 Price: $29.95
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