For all other eligible renewable energy projects, the PTC is available to projects placed in service before January 1, 2014. In 2012, the U.S. wind manufacturing sector is estimated to have the capacity to produce approximately 13 gigawatts (GW) of wind turbines annually. Proponents of extending the wind PTC point to the potential loss of manufacturing and construction jobs that will result if the tax incentive is allowed to expire, the environmental benefits of U.S. wind development, and the potential to re-establish the United States as a global leader in an emerging industry. Impact of Current PTC Expiration

U.S. wind installations are expected to reach record levels in 2012, with industry analysts estimating between 10 GW and 12 GW of total installations by the end of the year. Wind developers, utility companies, and investors are accelerating their planned wind projects in order to qualify for tax credit incentives that might not be available in 2013 and beyond. In essence, the pending PTC expiration at the end of 2012 has actually created a short-term surge in wind-related manufacturing and employment. However, the PTC incentive is only one of several factors that influence wind development, and a PTC extension, in isolation of other market factors, may not result in ever-larger levels of wind deployment. Other important factors for project development include state renewable portfolio standards, electricity demand growth, and natural gas prices. Short-Term versus Long-Term PTC Extension

Some advocates for extending the availability of the PTC for wind projects argue that a long-term extension is needed to provide stable incentives that will result in certainty within the wind industry and may stimulate growth. AWEA and other proponents of extending the availability of the PTC incentive argue that the expiring nature of production tax credits has created a volatile U.S. wind market with new installations ramping up just before the credits expire, and the following year having very little new wind development. It is possible that such uncertainty could reduce investment, research, and employment in the wind industry. Going forward, an element of the PTC debate may include the duration of PTC availability. State RPS policies are the primary renewable electricity demand driver, although demand for renewable power can also be encouraged by voluntary green power programs and fundamental economics. However, EIA projects modest growth levels for U.S. electricity demand over the next several years (see Figure 4 ). Generally, lower natural gas prices can reduce the economic competitiveness of wind power, while higher natural gas prices can create opportunities for wind to compete on economics alone, in some cases without subsidies. Low natural gas prices can lower electricity prices and result in making ACPs more economical than either building or paying for renewable generation. However, as part of the policy design, the California RPS includes a cost containment design element, which is directly linked to the price of natural gas. Policy Discussion

The 112 th Congress may decide if the PTC incentive for wind electricity will be extended, modified, or terminated. Some market estimates indicate that a PTC extension would result in increasing U.S. wind capacity installations, when compared with allowing the PTC to expire—but at levels less than those observed since 2009 and less than current U.S. wind turbine manufacturing capacity (see Figure 2 ). Generally, the shorter the extension the more near-term wind market activity that may be stimulated since project developers are motivated to install new capacity in order to qualify for PTC incentives. The design of a PTC phase-out policy could potentially be difficult because, in order to stimulate U.S. wind development, the rate at which the PTC is reduced may need to be offset by, or aligned to changes in, other market factors (e.g., higher natural gas prices, more stringent state RPS policies, increased U.S. electricity demand). Legislative Action

The Family and Business Tax Cut Certainty Act of 2012 ( S. 3521 ) passed a Senate Finance committee vote and was reported to the Senate on August 28, 2012. The wind PTC extension and modification outlined in S. 3521 enables projects to qualify for the PTC if construction begins before January 1, 2014; however, there is no requirement for the qualified project to be placed in service by a certain date.
U.S. wind projects that use large turbines—greater than 100 kilowatts (kW)—are eligible to receive federal tax incentives in the form of production tax credits (PTC) and accelerated depreciation. Originally established in 1992, the PTC has played a role in the evolution and growth of the U.S. wind industry. Under existing law, wind projects placed in service on or after January 1, 2013, will not be eligible to receive the PTC incentive. Industry proponents are advocating for an extension of PTC availability, citing employment, economic development, and other considerations as justification for the extension. While a PTC extension may improve the prospects for U.S. wind development and manufacturing next year and beyond, the wind industry is influenced by a number of other factors. It is uncertain how the near- or long-term availability of the PTC incentive—in isolation of changes to other market factors—would either grow or sustain current wind development and manufacturing levels.
For 2012, the pending expiration of the wind PTC is actually creating a short-term surge in wind project development and related investment and employment. Wind installations in 2012 are expected to range somewhere between 10 to 12 gigawatts (GW)—a record year for the industry. However, market estimates for new installations in 2013 range from 1-2 GW if the PTC expires and 2-4 GW if the PTC is extended. Limited market activity in 2013 is partially explained by the uncertain nature of the PTC, which results in reduced manufacturing orders and development activity as developers and investors wait for official policy direction. Wind installation projections for 2014 and beyond vary with the assumed availability, and duration, of PTC incentives. However, all projections reviewed for this report expect annual U.S. wind turbine demand to be less than the existing U.S. turbine manufacturing capacity—approximately 13 GW per year.
Other factors that can affect wind development include (1) state renewable portfolio standards (RPS), (2) U.S. electricity demand growth, and (3) the price of natural gas. State RPS policies have been the primary demand creator for wind projects, in most cases, by requiring certain utilities to source a percentage of their retail electricity sales from renewable generators. Market analysis indicates that incremental RPS-driven demand for all sources of renewable power is estimated to be 4 GW-5 GW annually until 2025. Additionally, U.S. electricity demand growth is expected to be modest for the foreseeable future, meaning that there will likely be modest demand for new electric power capacity. Finally, the price of natural gas can also influence wind markets. Low natural gas prices can erode the economic competitiveness of wind electricity, while high natural gas prices can result in opportunities for wind to compete economically without the PTC. Current estimates from the U.S. Energy Information Administration (EIA) project sustained low, but increasing, natural gas prices for the next several years.
By the end of 2012, Congress will either allow the PTC incentive to expire or it may choose to extend or modify the incentive. Should Congress decide to extend the availability of wind PTC incentives, the duration (e.g., two years, four years, permanent) of such an extension will likely be part of the policy debate. Generally, the shorter the extension the greater the short-term economic and employment activity as developers and investors accelerate development plans in order to qualify for the PTC incentive. However, this development acceleration is likely to reduce future RPS-driven demand. A permanent PTC is also a policy option that may be considered, and EIA estimates indicate that such a policy may actually reduce near-term wind capacity additions, with annual installations peaking at 4 GW in the 2030 timeframe. Higher natural gas prices, more aggressive RPS policies, and increased U.S. electricity demand could change this outlook.
The Family and Business Tax Cut Certainty Act of 2012 (S. 3521) was reported in the Senate on August 28, 2012. S. 3521 includes a one-year extension and modification of the wind PTC, making it available to projects that begin construction before January 1, 2014.