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Establishing intent with the production tax credit

It’s hard to believe that AWEA WINDPOWER 2014 is upon us already. If you remember this time last year, we were eagerly waiting to hear from Washington on clarifying the now expired production tax credit (PTC). As we enter WINDPOWER 2014 as an industry, we are starting to hear some troubling statements from the Internal Revenue Service pertaining to the same PTC we thought was clarified last year. And though I know that it is not true, it’s almost as if these statements are planned to coincide with AWEA to create buzz.

PTCA quick review 
To recap from 2013, we heard the IRS provide some guidelines and steps to follow to qualify a wind project for a tax credit. These clarifications included safe harbor and continuous construction, along with some provided examples given by the IRS. These clarifications allowed developers and financial institutions to make decisions on their projects as to which eligible path they would take to qualify for, what seemed like at the time, the last extension of the PTC.

In our experience, we saw a large number of developers either start construction on access roads, foundations, or safe harbor on transformers or other major equipment. Some developments took multiple routes to ensure there were no lingering doubts.

Clarifying intent
Now, there are rumblings coming out of Washington that say the intent of the clarifications may have been misinterpreted. This comes a good four months after the PTC deadline has expired. You can easily guess how a statement like this has ramped up the risk for financial investors.

Since there is now language alluding to the fact the intent of the clarifications may have been misread, it appears financial institutions and project investors are halting further financing of projects until this intent is clarified. But there does appear to be a small silver lining. If your project has already obtained financing, it appears you will not be affected.

All projects that do not have financing will most likely be put on hold until we can get clarification. This will affect projects which have not safe harbored on turbines and instead chose to safe harbor on transformers, preliminary access road construction, and or foundation installations.

Why does this not affect projects that have safe harbored on turbines? Most likely these projects obtained financing to procure the turbines. Other projects which had planned on qualifying with continuous construction or other means have most likely been funded by developers with private equity investments, with the intent to finance the rest of the project construction and turbine procurement using major lending institutions.

What’s next
Hopefully, this will all get resolved before the end of May, as December 31 is rapidly approaching, with many projects needing to start engineering and construction activities this month for successful energization in 2014.

It is unfortunate we are hearing further clarifying statements on an expired qualification period for an extended PTC, yet as an industry we have weathered the push and pull of PTC policy for many years. I for one am looking forward to the prospect of a stable energy policy that will allow for a proper project schedule.

About the author

Mike is our account executive for the Renewable and Power markets. His responsibilities include serving renewable energy clients throughout the United States as well as utilities located in the western part of the country, and he specializes in developing renewable energy, energy storage and electronic power solutions for his clients. He has more than 10 years of experience as a project and substation engineer. His background encompasses project management, commissioning, protective relaying, SCADA systems, substations and switchyards, conduit and raceway systems, grounding systems, field investigation and testing. From issues and techniques to new technological developments, he keeps you updated on what's happening in clean power generation.