Tax credit worry hampers U.S. wind industry

Lack of a long-term federal tax credit continues to hamper the wind farm industry and fosters a boom-and-bust cycle of construction, developers said on Monday at a conference on financing renewable energy.

The industry is also grappling with the cost of wind turbines rising at least 20 percent in the past year due to higher steel prices and truck transportation costs, developers said.

"The greatest opportunity for sustained growth in this industry is market certainty," said Raimund Grube, regional managing director for PPM Energy, a division of Scottish Power Plc and a leading developer of U.S. wind farms.

"And that market certainty, in the near term, is going to come from a long-term, three- to five-year production tax credit," he added.

The production tax credit, or PTC, has expired and been renewed several times -- creating a boom-and-bust cycle of wind farm development. The credit of 1.9 cents per kilowatt hour for the first 10 years of a wind farm's life will next expire in December 2007.

Without a longer-term tax credit to keep wind farm development booming, companies are hesitant to invest money researching and developing new turbines to turn wind into electricity or expanding turbine manufacturing capacity, developers told about 50 people attending the conference in Chicago sponsored by Platts, an energy industry publication.

While dealing with uncertainty about future tax credits, wind farm developers have seen the cost of turbines rise at least 20 percent in past year, said James Murphy, chief financial officer for Invenergy LLC of Chicago, which develops, owns and operates several wind farms.

Wind farms are passing those costs onto the utility companies that enter into power purchase agreements, or PPAs.

"It's been a real (price) sticker shock for the utilities," Murphy said. "I think that they're getting the message as they see developers consistently coming with the same pricing. I think with the cliff coming up on the PTC again, I think we're going to see a lot more PPA activity in 2007 than 2006."

Several states already require utility companies to generate a minimum amount of electricity from renewable resources.

"As natural gas prices stay high and (there) is political pressure to do renewable projects and have renewable resources, the pressure will be on to get PPAs on in 2007," Murphy said.

In 2005, wind farm development boomed, with U.S. capacity jumping 35 percent as companies invested $3 billion to bring an additional 2,400 megawatts online.

This year, capacity is expected to grow by another 3,000 megawatts, said the American Wind Energy Association, a trade group in Washington.

The United States, the world's largest energy consumer, gets about 0.6 percent of its energy from wind. Coal-fired plants produce about half of U.S. energy, with another 20 percent of energy coming from nuclear power plants and 18 percent from plants burning natural gas.