The extension of the production tax credit will create “a large increase in wind generation” in the near term, according to a report from the Energy Information Administration (EIA).
After the extension of the production tax credit as part of the American Taxpayer Relief Act of 2012, renewable power capacity increased, with the largest increase occurring with wind power projects.
The projection of wind power capacity is increased by 34 percent compared to the Annual Energy Outlook 2013 reference case, which does not include reference to the extension of the credit. The total projected renewable energy generation is 9 percent higher in 2016 compared to the reference case, according to the EIA.
The EIA stated a crucial new feature of the extension is a relaxation of the requirement in previous versions of the PTC that a qualifying wind project is in service by a specified date. The PTC extension requires that qualifying wind projects be under construction by the end of 2013.
The Internal Revenue Service stated April 15 that a plant is under construction if it has either started “physical work of a significant nature” or if it has incurred at least 5 percent of the project’s estimated total cost. The EIA stated its analysis assumes the effective length of the PTC extension is “equal to the typical project development time for a qualifying project, or roughly three years for a wind project.
Long-term growth, however, is less significant, with the difference between the reference case and the ATRA projection by 2040 at only 2 percent, although wind power capacity still shows a 17 percent increase in that time period.
“These results indicate that, while the short-term extension does result in a net increase in wind generating capacity, some construction that otherwise would have occurred later in the projection period is simply completed earlier to take advantage of the extended tax credit,” the report states. “The increase in wind generation partially displaces other forms of generation in the reference case, both renewable and nonrenewable, particularly solar, biomass, coal and natural gas.”
The EIA also noted that although an additional 20 GW of wind power capacity will be created under the ATRA between 2012 and 2016, the exact timing of the short-term capacity additions is relatively uncertain.
“Following the buildup in capacity completions leading up to the expected PTC expiration at the end of 2012, the first quarter of 2013 saw very little wind project development activity,” the report states. “As developers have a chance to react to the new IRS clarification, EIA expects that power purchase agreements and financing activity will resume, and the timing of this resumption likely will affect the timing of building new capacity in the near term.”