HR 1 and Wind Power’s Production Tax Credit: Update

“AWEA’s Tom Kiernan carped that HR 1 effectively kills half of the projects in the wind power pipeline. His statement confirms what many already knew. Big wind has been gaming the PTC phase-down from the start using lax IRS guidance to ensure the bulk of the proposed projects will earn the 2.4¢/kWh benefit. Under HR 1, most of these projects will likely have to settle for the reduced subsidy, or not get built at all.”

“HR 1 is expected to save taxpayers $12.3 billion in PTC taxes during 2018–2027. But it does much more. HR 1 finally shuts off the subsidy spigot for a technology (wind) that has repeatedly proven to have limited viability, creates harmful market distortions, and diverts essential resources away from other, more promising opportunities.”

The multi-national, multi-billion dollar wind industry and its group-think sycophants in the media blew a collective gasket this month following approval of the U.S. House tax bill (HR 1). Apparently, House lawmakers shirked 25-years of subsidy lore by daring to rein in [1] the open-ended, unlimited wind-PTC tax that now costs Americans over $5 billion annually.

The House was right to take aim at the wind PTC and the Senate should follow suit.

If we continue on our current course, the PTC tax will grow by an additional $25 to $60 billion for wind projects constructed in the years 2016–2020. [2] The actual price tag is difficult to pin down since it depends on the number of new wind megawatts installed in that period. At the start of 2017, industry reports asserted that between 30,000 and 70,000 megawatts of safe-harbored turbines were already under contract and, if placed in-service within four years (end of 2020), would get full PTC treatment.

AWEA’s Tom Kiernan carped that HR 1 effectively kills half of the wind project pipeline. His statement confirms what many already knew. Big wind has been gaming the PTC phase-down from the start using lax IRS guidance to ensure the bulk of the proposed projects will earn the 2.4¢/kWh benefit. Under HR 1, most of these projects will likely have to settle for the reduced subsidy, or not get built at all.

Special Rule for Determination of Beginning of Construction

The provision of HR 1 causing big wind the most heartache is the “Special Rule for Determination of Beginning of Construction,” which clarifies when a project is considered to have started construction.[3]

Working from IRS guidance, HR 1 clarifies PTC-eligibility by adding the following language to the statute: “the construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service.”

In other words, projects that moved dirt or contracted for turbines by the end of 2016, will not be assured the full PTC, unless the developer can show continuous construction (or progress) before that date and through to project completion. Congress rightfully omits from the bill any reference to the IRS’s contrived 4-year development window which grants projects a presumption of being continuous so long as they are put in service by 2020.

HR 1 is expected to save taxpayers $12.3 billion in PTC taxes during 2018–2027. But it does much more. HR 1 finally shuts off the subsidy spigot for a technology (wind) that has repeatedly proven to have limited viability, creates harmful market distortions, and diverts essential resources away from other, more promising opportunities.

———

[1] HR 1 resets the PTC value back to its 1992 value (1.5¢/kWh) and provides crucial clarification on how projects will qualify for the subsidy.

[2] The wind PTC pays 2.4¢ per kWh for energy generated during the first ten years of project life. If 30,000 MW of new wind are built during 2016–2020, the cost of the PTC assuming a 40 percent capacity factor would be $25.2 billion paid out over 10 years (8760 hrs * 30000 mw * $24/mWh * 40% * 10 years)

[3] Under the 2012 American Taxpayer Relief Act (ATRA), PTC eligibility changed so projects need only “start construction” before the expiration date in order to claim the subsidy, rather than having to be placed in service by that date.

The post HR 1 and Wind Power’s Production Tax Credit: Update appeared first on Master Resource.

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November 28, 2017 at 01:26AM

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