We have all heard the hype about the flurry of activity surrounding the end of the 2013 wind production tax credit (PTC). For years, the PTC has driven development, manufacturing, engineering and construction, and the effects on the industry cannot be ignored.
Wind development provides thousands of well-paying jobs across the United States. It provides much-needed tax revenue to remote locations of the country. And let’s not forget that it also provides our country an energy source that can be tapped for the next 20 years, which is the average life of a wind plant. We cannot also ignore the fact that the wind industry has largely been driven by a federal subsidy that is under direct fire, and a PTC being available beyond 2015 is questionable at best.
So what does it mean when we hear that there have been somewhere around 60 power purchase agreements (PPA’s) signed in 2013? What does it mean that construction has started on over 10.9 GW (yes, gigawatts) in the fourth quarter of 2013? This is a massive amount of development, with comparisons being made to the record-breaking wind installation year of 2012.
A surge of installations in 2014
Let’s step back and take a look at a few of the market drivers for the 2013 extension of the PTC. In this PTC-qualification age, we find ourselves in a new arena. The revision of the PTC allows developers to keep projects in a holding pattern until the fourth quarter of 2015, using clauses such as continuous construction, PPA contract negotiation and major equipment procurement issues, along with unreasonable weather delays.
No longer are we dealing with a development period of one year. What we have is a two-year grace period where final energization needs to be completed by December 2015. That gives developers two years to procure, engineer, construct, finance or sell these newly developed projects. To this end, we have seen a lot of developed projects that potentially qualify for the PTC changing hands very rapidly.
While we may hear a lot of buzz in the air, we as an industry are not seeing a lot of movement on these potentially qualified projects. We have run into a period where the majority of these wind farms will be energized in 2015. Potentially, there are somewhere around 60 developments looking for major equipment, engineering services and contracts to help put projects in the ground and get turbines in the air. The procurement scheduling, if not already started, are border-line frightening.
After the PTC extension there was an opportunity where a project could have taken advantage of reasonable schedule float, open queues with manufactures, contractors with available crews, and engineering firms available, with engineers ready to deliver a quality project. This is especially true when you look at projects being developed in the South, where weather is less of an issue for construction
The bottom line
So what does this all mean for 2014 and 2015? There are a few time constraints that will provide the industry with some drop dead dates. Between engineering, construction and procurement issues, we will see an enormous amount of engineering and construction activity start the second half of 2014, with the majority of that work being completed in 2015. That means it will be a few very busy 18 months for those involved.
However, all hope beyond 2015 is not lost. We will see work completed in 2016 and beyond. The pace of that work will be influenced by gas prices, legislation and improved technologies. We must not forget that without an economic payback, we will not see continued development. What will drive the future of wind development will be a continued focus on a domestic energy policy coupled with consumer pressure for renewable generation.