BP wind program gaming out 4 scenarios on fate of PTC

Source: Nick Juliano, E&E reporter • Posted: Wednesday, July 11, 2012

As uncertainty over the fate of a key wind industry tax break seems likely to persist until at least the end of this year, officials at BP PLC are gaming out four scenarios for how their business will adapt depending on what Congress does, a top official at the company said yesterday.

Historically, growth in the wind industry has been tied to the fate of the production tax credit, which was first enacted in 1992. Development has fallen precipitously whenever the temporary credit lapsed, and next year promises to be no different if Congress does not extend the credit beyond its scheduled expiration at the end of this year, officials said.

“We are all of this year developing scenarios because … you see this roller coaster of investment and of wind energy coming online, all triggered by uncertainty around the production tax credit renewal,” said Katrina Landis, CEO of BP Alternative Energy. “It is absolutely not the way to run a sensible energy policy.”

Landis said the company is considering four scenarios: a one-year extension of the PTC, a two-year extension, a plan to “step down” the subsidy from its current 2.2-cent-per-kilowatt-hour level over a period of years and an expiration of the credit.

“If it’s not extended at all, we’re into relatively small build program for 2013,” Landis said yesterday at a forum in Washington hosted by the Atlantic Council. “We work a lot with turbine manufacturers, and I can tell you there’s not a single one of them that has an order for 2013 right now.”

Landis said officials at BP Alternative Energy, which has investments primarily in wind and biofuels projects, have approached at least one turbine manufacturer, whom she did not name, to negotiate a potential deal structured to accommodate the uncertainty surrounding the credit.

“We’ve gone to one of those manufacturers, and we’ve said, ‘Look, can we possibly put a project together that has different triggering mechanisms based on where the PTC lands?’” she said. “‘So is there anything we can do? … Can we get some turbines? Can we put together a sensible project that allows us to move forward in this period of uncertainty and allows you to keep your plant up and running and not lay all your staff off?’”

Despite uncertainty surrounding the PTC, Landis was bullish overall on the future for wind, which she said would become price-competitive with other forms of electricity without relying on subsidies. BP has about 2,000 megawatts of wind capacity online and is in the midst of developing three additional wind farms this year, in Pennsylvania, Kansas and Hawaii, she said.

BP’s focus on alternative energy began in 2005 with a plan to invest $8 billion over a decade — a target the company will hit by the end of this year.

Landis said the interest was based on recognizing some “very attractive business opportunities,” especially in the wind and biofuels space, and she stressed that the company looks to invest in profitable technologies.

She noted that BP would be exiting the solar business, in large part because manufacturing subsidies offered to Chinese solar panel manufacturers brought the price of solar panels down too far. That is great for customers, she said, but not ideal for companies with manufacturing facilities outside of China.

Landis also said BP had considered investing in offshore wind development but decided against it because the technology was still too expensive to be worthwhile, although she said the company may reconsider its position if costs come down.