Wind Power Industry Seeks Phaseout of Tax Credit Amid Republican Scrutiny

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By Ari Natter

Jan. 15 — The wind power industry is lobbying for a gradual phaseout of its production tax credit as it faces the reality that an increasingly skeptical Republican-controlled Congress may choose to let the lucrative incentive remain expired, according to the chairman of the Senate Finance Committee, lobbyists and others in the industry.

The prospect of voluntarily ending the 2.3 cents per hour tax credit for renewables was once anathema to the wind industry, but now “the wind people themselves” have said they would like a phaseout, Sen. Orrin Hatch (R-Utah) told reporters earlier this week in the Capitol.

“I think they would take any phase out they could get, rather than just lose it all at once,” said Hatch, adding his position was “neutral” on the issue.

Congress allowed the credit, which was first enacted in 1992, to lapse at the end of 2013, and then retroactively extended it through 2014 in December at a cost of $6.4 billion.

Though Congress has allowed the credit to lapse and then retroactively extended it several times in the past, some in the wind industry were “stunned” in November when then-Senate Majority Leader Harry Reid (D-Nev.) included a phaseout of the production credit as part of a tax extenders deal negotiated with House Republicans, an industry analyst told Bloomberg BNA.

The phaseout plan never came up for a vote due to White House opposition to unrelated aspects of the deal, and it wasn't publicly released.

Industry Sees Handwriting

“I think they feel like the handwriting is on the wall,” the analyst said. “They are debating amongst themselves what is the best deal they can get.”

The four-year phaseout included as part of the deal Reid negotiated with then-House Ways and Means Chairman Dave Camp (R-Mich.) would have included a full extension of the credit for two years, and then its value would have decreased to 80 percent in the following year, then 60 percent in the year after that, and then zero in the following years, said Curt E. Beaulieu, who previously served as the Senate Finance Committee's Republican Tax Counsel.

“I think that phaseout is still in play and would probably be the likely outcome if they decide to deal with extenders again,” Beaulieu, who now serves as senior counsel at law firm Bracewell & Giuliani LLP, said in an interview.

General Electric Favors Extension, Then Phaseout

Among those who have been encouraging Congress to extend the tax credit through 2015 and then phase it out is General Electric, one of the world's leading wind turbine manufacturers, said Denise Bode, the former head of the American Wind Energy Association

David Malkin, director of government affairs and policy for GE Energy Management, told Greentech Media earlier this year that the wind power industry is reaching the point where it no longer needs the production tax credit to survive.

“In some parts of the country on a levelized-cost-of-energy basis, wind is at par with combined-cycle gas turbines without the PTC,” Malkin said.

A spokesman for GE told Bloomberg BNA that Malkin's comments were “personal in nature” and didn't represent the company's position.

“The PTC has been critical to fueling the wind industry’s development over the past decade, supporting advanced technology investment to reduce costs and increase wind’s competitiveness,” the company said in a statement. “In the short-term, the PTC is important to maintaining the wind industry’s momentum into 2015.”

Battling Republican Orthodoxy

The credit still has Republican supporters, such as Sen. Chuck Grassley (R-Iowa), who first authored the provision, and Sen. John Thune (R-S.D.), a member of the Republican leadership, who has called a phaseout of the credit a good compromise. Thune in April authored an amendment that would have phased the credit out over a five- year period.

But Republican supporters of the incentive “are increasingly battling their own party's orthodoxy,” said Derek Dorn, a partner at Davis & Harman LLP, who previously was Democratic staff director for the Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure.

“Though the PTC ultimately was included in the extenders package that passed in December, ending the PTC became something of a rallying cry for conservative members and key interest groups,” Dorn said in an e-mail to Bloomberg BNA. “With Republicans taking control of both chambers, the growing tide against the PTC does not bode well for advocates of another extension.”

When the production tax credit expired in 2013, wind installations came to a halt, resulting in a 92 percent drop in new wind projects compared with 2012 and a $23 billion drop in private investment, according to the American Wind Energy Association, a Washington trade group that represents companies such as Florida-based wind farm developer NextEra Energy Inc. and turbine maker Vestas Wind Systems A/S.

Credit Said ‘Off a Cliff.'

“The PTC was extended for a mere 2 weeks and is yet again expired, leaving the industry uncertain and imperiled,” Rob Gramlich, AWEA's senior vice president for government affairs and public affairs, said in a statement provided to Bloomberg BNA. “We don't need the PTC forever, but simply letting it fall off a cliff doesn't get us any closer to the end. The industry is working with the Congress, including Chairman Hatch, to craft a reasonable policy.”

To contact the reporter on this story: Ari Natter in Washington at anatter@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com