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NREL study finds end of tax credits could cripple wind growth

A new study by the National Renewable Energy Laboratory paints a grim picture for wind power growth if federal tax credits are allowed to expire, but solar growth remains strong.

Annual wind capacity additions will fall dramatically following the expiration of the federal production tax credit, or PTC, the study found, while solar capacity will see relatively steady annual growth even after the subsidies phase out.

The industry is keeping a close eye on how demand will fluctuate when the PTC ends. The subsidy has helped create strong growth in the U.S. wind market, but as part of a 2015 deal to extend the credit, the PTC will phase out completely after 2019

The looming expiration of both the PTC and the investment tax credit, or ITC, for renewable energy projects — absent action from Congress, which could still happen — has raised concerns among renewable energy advocates about growth beyond 2020. The laboratory, or NREL, study found that "wind is generally economically competitive before the tax credits expire but tends to become less competitive after, while [photovoltaic] is generally competitive both before and after the expiration of the tax credits."

Under various models, NREL projected that total U.S. operating installed wind capacity will be between 111 GW and 338 GW by 2030, with 135 GW as a reference scenario. Total installed solar capacity will reach between 112 GW and 383 GW by 2030, the report projected, and the reference scenario is 242 GW. The models tested scenarios for the wind and solar markets under different variables, including the extension or expiration of tax credits, the imposition of carbon dioxide fees, high or low natural gas prices, high or low economic growth, and high or low capital cost assumptions.

In the tax credit extension case, wind capacity is lower than in the reference case of 135 GW in the early 2020s, "suggesting that capacity in the near term is overbuilding in the reference case in order to take advantage of the tax credits before they expire." If the PTC expires, "capacity additions immediately fall to zero in 2020 and total installed capacity remains at 111 GW through 2030," the study says.

Originally enacted in the Energy Policy Act of 1992 and extended 10 times between 1994 and 2015, the PTC offers 1.5 cents/kWh in 1993 dollars adjusted for inflation. The paper assumes a tax credit of 2.3 cents/kWh. Policy uncertainty from lapses and extensions of the tax credit have "created a volatile market which had a boom-and-bust cycle," according to the study. The PTC has expired for all renewable technologies other than wind.

The ITC, originally enacted as a part of the Energy Policy Act of 2005, offers a payment of 30% of the qualified property expenditures. Congress extended it for eight years as a part of a 2008 bill. Solar has a permanent 10% ITC.