The five-year extension of a key production tax credit in President Obama’s second term took the US wind industry by surprise. Never before had firms enjoyed such long-term clarity when making their investment decisions.
But, for surprise value, the extra one-year extension of the PTC confirmed by the US House of Representatives on 17th December has trumped even that.
We don’t think anyone can be in doubt about President Trump’s views on the sector – “I never understood wind,” he opined just before Christmas – and so we didn’t expect an extension with him in charge.
Even more surprising is that companies in the sector have been saying publicly for the last five years that another extension of the PTC wasn’t required. As recently as September we said the reluctance to lobby for more PTC support felt like wind was making its life more difficult, in sharp contrast to lobbying by US solar for an extension of the Investment Tax Credit.
This is a notable exception to the adapt that ‘If you don’t ask, you don’t get.’
The details have proved intriguing too. Since 2016, the PTC has been cut by 20 percentage points each year to 40% for projects where construction started in 2019, with the PTC due to expire for new projects from 1st January 2020.
Now, as the result of the 2019 Extenders Bill, companies will be able to qualify for a 60% PTC rate for projects where construction begins in 2020.
This is undoubtedly good and will spark a wave of onshore wind construction at a time when investors were fully prepared for the PTC to wind down.
This will help manufacturers and developers to cope with headwinds, including rises in material prices as a result of Trump’s trade wars with China.
It is also likely to prompt howls of dismay from Trump’s supporters and those in the fossil fuels sector who will argue that onshore wind doesn’t need new support. We have some sympathy, believe it or not, as the PTC was intended to support a new industry and has done a great job in doing so. But we can’t feel guilty about wind receiving support while fossil fuel firms do too.
However, it won’t all be smooth sailing.
The fact that the PTC is rising to 60%, rather than staying at 40%, is likely to cause an administrative headache at projects where construction started in 2019. This will force many developers to make a case that construction on their projects actually started in 2020, not 2019, so they can take advantage of the higher PTC on offer. This will cause frustration.
The Extenders Bill also ignored lobbying for PTC support for energy storage and offshore wind, and for the ITC extension we mentioned earlier. This shows that onshore wind still enjoys strong federal support, but may dampen the growth of these nascent industries.
And the fact is that this one-year extension might also herald a return to the era of short-term PTC extensions followed by annual cliff edges.
Uncertainty is a hallmark of the Trump administration though, and experienced US wind professionals will remember enough of the pre-2016 era to steer the sector through these times, so we aren’t too worried. Only a change of president will change this.
But overall, we think this latest extension should underline Trump’s reputation as an unexpectedly pro-wind president.
Yes, he’s made a lot of noise about hating the industry but hasn’t followed up with the harsh and damaging policies that he could have, with the result that US wind has continued to grow strongly during his tenure.
This bears out our assessment from early 2016 that he was the least worst Republican for wind, and this latest PTC extension is the cherry on top.
So thank you President Trump. You don’t understand wind, you certainly don’t love it, but you haven’t done the damage that you could have. Sometimes that’s the best we can hope for. We look forward to discussing this more in May.