On December 16, the Senate approved a bill (already passed by the House of Representatives on December 3) that retroactively extends the federal production tax credit (PTC) for wind plants, which had previously expired at the end of 2013. However, because of timing, this extension is unlikely to spur significant additional wind development activity beyond what installers had already planned.
First introduced in 1992, the PTC allows eligible wind generators to take an inflation-adjusted tax credit per unit of generation (2.3 cents per kilowatthour in 2014) for the first ten years of operation.
Previously, the PTC had been extended on an incremental, short-term basis and had been allowed to lapse or nearly lapse on several occasions. Before 2013, the tax credit legislation specified that projects must be in service by the end of the year. The 2013 and 2014 extensions were different, as they required that projects must have been under construction by the end of the year.
Projects could meet the construction deadline by either starting physical work or through the safe harbor clause, which required them to spend at least 5% of the project cost prior to the end of 2013 and maintain continuous progress thereafter. Under the 2013 extension and subsequent IRS guidance, wind projects attempting to qualify for the PTC through this safe harbor provision had an incentive to enter service prior to the end of 2015 in order to ensure PTC eligibility.
The change in eligibility requirements and the timing of the 2013 extension (the deadline wasn’t extended past 2012 until the beginning of 2013) contributed to wind capacity additions falling from an all-time high of 13 gigawatts (GW) in 2012 to less than 1 GW in 2013.
Capacity additions in the first three quarters of 2014 have totaled less than 2 GW, but project developers have reported to EIA an additional 3 GW of expected capacity additions for the fourth quarter. They have also reported to EIA an additional 11 GW of wind projects with expected completion dates in 2015, primarily in states such as Texas, Oklahoma, Illinois, Iowa, and Minnesota.