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The Future of Tax-Advantaged Energy Production


The tax credit for wind power generation is slated to sunset at the beginning of next year. Will the tax credit be extended? If not, what does that portend for the nascent wind power industry?

Exelon Corp. (EXC) was kicked out of the American Wind Energy Association (or AWEA) last week. Despite being one of the country's biggest wind generators, with 1,003 megawatts (or MW) of operating capacity and 696 MW of projects under construction, management committed an unforgivable sin: It made public comments that it does not support an extension of the wind energy production tax credit.

With expiration looming Jan. 1, 2013, the AWEA is fighting tooth and nail to win more time for the credit and continue the sector's recent building boom. Imminent expiration has in fact made wind a campaign issue in many parts of the country, including key swing states where the sector has become a major employer.

Less publicized are looming expirations of tax credits now providing an advantage to other forms of energy. Some geothermal power credits, for example, will sunset on Jan. 1, 2014. So will credits for biomass, landfill gas, and qualified hydropower facilities. Finally, tax credits for solar energy, fuel cells, microturbines and geothermal heat pumps are slated to end on Jan. 1, 2017.

Those are the dates by which new projects must be in service in order to qualify for credits, according to a study released this week by Allison Woodbury Leppert of the law firm Leonard, Street and Deinard. Ms. Leppert also notes some companies will lose their tax advantages as soon as Sept. 30, unless they make proper filings for the 1603 Grant in Lieu of Tax Credit.

How essential are these credits for renewable energy projects and those who develop them? And will ending them choke off America's renewable energy industry, just as the sunset of similar tax credits did in the 1980s?

Tax credits have clearly spurred activity to date. Since 2006, US energy generation from wind power turbines has quadrupled from less than 30 terawatt hours (or TWH) to more than 120 TWH. Output rose 27% in 2011, as wind power rose to 61% of total US renewable energy output. Wind's total share of US electricity is still only about 3% , according to the US Energy Information Administration (EIA). But that's more than triple its contribution of less than 1% just a few years ago. And wind's share will rise again in 2012.

The requirements in more than three-dozen states that utilities use renewable energy have driven much of the infrastructure buildout. Such mandates are still quite popular in many states, notably California, which has a requirement that 33 percent of energy be generated via renewable sources by 2020. But as EIA data shows, regulations only provide so much incentive. In fact, plans for new wind power facilities will fall sharply after this year, when credits expire.

Again according to the EIA, roughly half of the 23.5 gigawatts of electric generating capacity slated to come on line in the US this year is some form of renewable energy. The percentage in 2013 is nearly as high, though it's almost all solar and other non-wind resources. By 2014, however, renewables' share of projects in the development stage falls to barely 30% , and by 2015 it's scarcely 10% . By contrast, nearly 90% of the US generating capacity that's on track to start up by 2015 is from natural gas.
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