For the past five years, the U.S. wind industry has been bracing for the phase-down and expiration of its federal Production Tax Credit — haunted, always, by concerns about what comes next. But the PTC “cliff” looks a lot less scary than it did just a few years ago, and that was true even before a one-year extension was granted this week by Congress.
The bad news is that many wind projects are unlikely to reach completion by the end of 2020, the deadline for developers hoping to secure the 100 percent PTC, which is worth roughly $24 per megawatt-hour generated for 10 years. Wood Mackenzie’s latest research counts 9 gigawatts of “at risk” projects aiming for completion in 2020, potentially worth nearly $11 billion of investment.
The good news is that many, if not most, of those projects will get built the following year at the 80 percent PTC level, crimping developers’ margins but still bringing gigawatts of clean power capacity onto the grid.
That spillover effect has set up a remarkable situation: It looks likely that more new wind farms will get built in 2021 at the reduced PTC than in 2019 at the full value.
In its latest market outlook, WoodMac forecasts 11 gigawatts of new U.S. wind installations in 2019, a record 15.2 gigawatts in 2020, and a bigger-than-expected 12.5 gigawatts in 2021.
Altogether, around 50 gigawatts of new wind capacity will go up between 2019-23*. That's the kind of sustained renewable energy construction boom that’s typically only seen in China, and it doesn’t include figures from the thriving American solar market.
There’s always a degree of uncertainty about the portfolio of projects looking to come online in a given year. But compared to other years, the pipeline for 2020 looks “extremely robust,” said Dan Shreve, head of global wind energy research at Wood Mackenzie Power & Renewables.
“There’s a tremendous amount of maturity in the pipeline as it currently stands,” Shreve said, with projects backed by a range of corporate deals, utility PPAs and bank hedges.
Among the developers with big near-term pipelines are NextEra Energy Resources, Invenergy and Enel Green Power.
Missing the 2020 PTC cut
Inevitably, some projects will not make the 2020 deadline.
Certain types of setbacks can happen in any year — flooding or snowfall, for example, can knock projects off track in the all-important fourth quarter. But 2020 is unique in the demands developers are lumping on the supply chain, particularly the construction and logistics companies being called upon to build so much capacity in a single year, Shreve said.
As ever, the size and strength of the developer matters greatly. “The biggest players are always going to command the most attention from the extended value chain,” Shreve said. “If you’re looking at limited EPC resources, limited logistics resources, the big players are going to be at the front of the line — they’re the ones that are going to eat first.”
Among developers who miss the 2020 full PTC deadline, strategies will differ for shifting the goal post into 2021. A project cannot simply switch its qualification date to a later year. Some developers will have qualified capacity at the 80 percent level as a precaution; others may take the riskier approach of claiming exemptions under the IRS' guidelines for project qualification.
Regardless, the multi-gigawatt bulge of projects that misses the 2020 deadline will provide a tailwind for the market in 2021 — and potentially beyond.
Offshore wind and the Holy Grail
The wind market faces a number of well-known challenges in the 2020s, chief among them transmission constraints in key development regions and growing competition from utility-scale solar.
But even over the longer horizon, there are stronger reasons for optimism than existed a few years back — starting with the big news this week that Congress granted the wind industry (but not solar) a one-year extension of its tax credit.
2019 was supposed to be the last year a developer could qualify a new wind project for the PTC at the 40 percent level. Now, developers can quality projects in 2020 at the 60 percent PTC.
The full implications of the PTC's one-year extension remain to be seen. But assuming developers still have four calendar years to build a wind farm after PTC qualification, the extension will give the market a critical lift in 2023-2024, precisely the timeframe when it was expected to be at its nadir.
Wind executives believe a world without the PTC will come with its own benefits, making it easier for new types of investors to participate in the market.
And from the mid-2020s and onward, U.S. wind installations had been expected to pick back up again anyway on the back of the offshore market, as massive projects begin reaching completion from Massachusetts down to Virginia.
Then there's always the possibility of grander political action on energy and climate change at the federal level — something that finally goes beyond the effective but endlessly frustrating PTC.
The industry wants "something more long-lasting, more technology-agnostic, more structural in nature," Shreve said. "Something that can really help the U.S. power grid to achieve high levels of decarbonization."
Correction: The story originally said 50GW would be built in a three-year window. That capacity will go up over a five-year period.