Proposed 6-year phaseout of PTC slowly gains traction on Hill

Source: Katherine Ling, E&E reporter • Posted: Friday, August 16, 2013

Legislation that would phase out tax incentives for the wind industry over the next six years is emerging as a possible compromise measure.

Rep. Mike Fitzpatrick (R-Pa.) introduced the bill, H.R. 2987, the day before Congress left for its August recess. The measure would extend 100 percent of the PTC through 2014, then ratchet down the credit by 10 percentage points a year until hitting 60 percent in 2018, after which it would expire in 2020.

Leading global wind turbine manufacturer Gamesa Technology Corp. called the measure a good compromise and pledged to push it.

“I think it is clear to say that this bill represents a responsible middle ground that will enable the industry to make the investments the industry needs in order to get to grid parity,” said David Rosenberg, vice president of government affairs and corporate communications at Gamesa, a Spanish company with U.S. operations based in Trevose, Pa.

Six years would allow wind technology to go through two research and development cycles, which should be enough to polish the technology to allow it to compete with other fuels, namely natural gas, Rosenberg said.

“We think this is a pragmatic and practical middle ground, where we think we can stand on our own two legs without a PTC. The history of the wind industry is very strong in terms of translating investments into improved technology. That is what members on the Hill want to hear. They should have the confidence based on the previous six years that we can deliver,” he said.

Fitzpatrick’s bill is the first stand-alone bill that could potentially have bipartisan support and answer the industry’s need for market certainty — although there are still other companies that want a permanent extension.

In December, the American Wind Energy Association released a letter to Congress outlining a phaseout of the credit by 2019 similar to Fitzpatrick’s bill, although the letter presented the phaseout as an idea to be considered in the context of a comprehensive tax-reform bill that would eliminate tax incentives across the energy industry.

AWEA said it welcomed the bill from Fitzpatrick but still called for the measure to be part of a larger effort on tax reform.

“We thank Congressman Fitzpatrick for his support of the American wind industry and the thousands of local manufacturing jobs that it brings. His legislation, as part of a comprehensive tax reform bill, could provide the wind industry with much-needed predictability and allow for longer-term planning and investment into future U.S. projects,” Lindsay North, a spokeswoman for AWEA, said in an email.

“Rep. Fitzpatrick understands that like any productive business, the wind industry needs to have the rules of the road clearly defined so that developers and manufactures can make smart, pro-growth business decisions.”

The PTC was extended in January through the end of this year, but further efforts to extend the tax incentives beyond that have been stymied because they are attached to other measures.

Rep. Jan Schakowsky (D-Ill.) introduced a bill in January that echoes the White House proposal to permanently extend the PTC by offsetting it with oil and gas tax reform, a nonstarter for Republicans. Rep. Mac Thornberry (R-Texas) included a phaseout of the wind tax credits as part of a larger energy bill that included expanded drilling for oil and natural gas on federal lands, which most Democrats would not vote for.

The House Ways and Means Committee has indicated it intends to act on comprehensive tax reform this year, and a consultant for the renewable energy industry said members of the committee have expressed interest in Fitzpatrick’s bill, calling it “helpful.” A committee spokeswoman said the panel is looking at such bills through a process it laid out for the comprehensive tax reform bill and had no further comment.

Another possible legislative vehicle for the measure could be a package of “tax extenders” that have been considered at the end of the session for the past few years that extends several tax incentives for one more year — usually a stopgap measure in the hopes that comprehensive tax reform can pass the following year.

Matthew DaPrato, a senior analyst with market analyst IHS, said the ambiguous nature of how the 2013 tax extension is applied — the guidelines state only that projects needed to start construction by the end of the year to qualify for the credit — could get the wind industry through 2015, but it is uncertain after that.

“We have seen a lot of progress in the industry over the past five to 10 years with new turbine innovations leading to taller towers and lighter and longer blades and lower cost of both installation and production,” he said.

“Certainty needs to be there in order to be a market that expands,” DaPrato added. “Having the long-term certainty keeps R&D front and center within the industry. If there is no long-term outlook for it, those funds will be channeled into other industries.”