Federal Policies: What Impact Do They Have on US Wind?

Guest blogger Brooke Cary takes a look at the impact of federal policy on US wind in 2017, based on insights from last year’s Wind Power Finance and Investment conference.

A new administration inevitably brings a level of uncertainty to the market, regardless of who enters the Oval Office. Experts have expressed concerns that there could be a temporary hold on investments in 2017, as policy plays out and folks take stock of where the market is headed. Otherwise, federal policy is expected to have a relatively limited impact on the market, compared to the changes in demand generated by C&I buyers, utilities, new PPA’s, and state Renewable Portfolio Standards (RPS).

“Some of the federal policies around taxes will be important and we’ll see some kind of change there, but I don’t think that’ll be a major driver for wind and other renewables,” said Rob Morgan, President and COO of Agile Energy.

One of the key policy changes expected to impact the wind industry is the corporate tax rate. President Trump has outlined a policy blueprint which includes the likely reduction of the corporate tax rate to 25%, or even 15%. In most cases, this would seem like an excellent policy move for business. However, the wind market benefits from tax equity investors, who receive write-offs from their tax-equity investments. These investors could lose their incentive to invest if the corporate tax rate was reduced, which “may leave developers short,” according to Bloomberg. Tax equity financing for wind was equal to $6.4 billion in 2015, according to the Institute for Energy Economics and Financial Analysis. A loss in these funds could be a serious concern for the wind industry. However, in the longer term, the lower corporate tax rate would spur growth, create demand, and encourage new entrants into the market.

“I think the whole idea there is to bolster corporate America and manufacturing America—and commercial operations as well, which would, in theory, create demand,” said Thomas Carbone, Vice President of Tri-Global Energy, a Texas-based renewable energy developer. While the tax rate change may be seen as a challenge or a risk, “off-take is really the risk,” he continued. Ensuring that developers can secure off-take agreements and fulfil the growing U.S. energy demand will help balance other potential risks to the industry.

In addition, 2017 marks the first year of the Production Tax Credit (PTC) phase out. Prior to the phase-out, the PTC—worth $0.023 cents per kilowatt-hour of energy produced—was on and off. This created much uncertainty for both investors and developers as to how long the credit would be available. Though the phase out means the expiration of the PTC by 2020, it also means a clear sense of the policy’s trajectory, which allows developers to better plan for future projects and financing.

Developers who have begun construction of the project already, or incurred at least 5% of costs for a wind project, will be able to take advantage of the credit at incrementally reduced amounts of 20%, 40%, and 60% until it is phased out in 2020.

“Our forecast is about 37 GW between 2017 and 2020 for US onshore wind, and we model that between 41-69 GW were able to qualify [for the PTC] via safe harbor. Now, this doesn’t even consider the projects that have started construction physically either onsite or offsite,” said Alex Morgan, a wind analyst for Bloomberg New Energy Finance.

“We could see costs stay around 100% PTC levelized costs of energy until 2020,” Morgan added.

A boost in wind energy projects is also expected through 2020, as developers rush to take advantage of the credit before it expires.