//US Wind Power Thriving as Tax Credits are Renewed

US Wind Power Thriving as Tax Credits are Renewed

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It has been a year since Congress extended generous tax credits for renewable energy projects, and the U.S. wind industry is thriving as a result.

The tax credit renewal has boosted the long-term outlooks for both the Wind and Solar industries. However, in the short term, the subsidies are more attractive for wind power, which has led to utilities to launching wind projects while they scale back solar installations.

Improvements in wind turbine technology has also opened up new locations for development and driving a wave of spending to upgrade existing projects. Over the last few weeks, utility companies with large renewable energy holdings — including NextEra Energy Inc, Southern Co and Xcel Energy Inc — have announced plans to invest billions of dollars in wind power.

Change in Emphasis from Solar to Wind Power

The competition from wind power is hitting solar companies that are already reeling from a global glut of panels. Prices have dropped 30 percent since the first half of 2016.

First Solar and SunPower Corp have both announced cost cuts and forecast a difficult market in 2017. Stocks in both companies have fallen to their lowest levels in nearly four years, with SunPower shares down 76 percent for the year and First Solar shares down 51 percent.

“We’re making a pivot now away from solar,” Tom Fanning, Southern Chief Executive Office told Wall Street analysts in October.

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The most popular wind power tax credit, which lasts for ten years, is worth 2.3 cents for every kilowatt-hour of electricity produced. After this year, however, the credit’s value will drop by 20 percent each year for projects that start construction from 2017 through 2019.

The wind industry tax credit is largest for projects that break ground in 2016 and will decrease each year after that before expiring at the end of 2019. Solar’s tax credit, by contrast, doesn’t start to decline until 2020, giving developers an incentive to focus on wind projects first.

The tax credit used most by solar developers is worth 30 percent of the value of the project and must be claimed entirely in the first year.

A sharp decline in utility projects is expected to offset growth in residential and commercial systems. It would be the first annual decline in the industry’s history, based on additions tracked back to 2000, said GTM Research. The number of new U.S. solar installations is expected to fall by 4 percent in 2017 — after rising 88 percent this year.

In stark contrast, wind projects under construction are approaching record levels, and new power contracts for wind facilities are up 39 percent so far this year, according to the American Wind Energy Association.

Xcel Energy this year announced a major strategy to boost wind energy, with its Chief Executive Ben Fowke saying the cost of projects is lower now than it will be for at least a decade.

Xcel plans to spend $3.5 billion on renewables, mostly wind, over the next five years, more than double what it spent over the previous 10 years.

Fowke said he expects his company will focus on solar again in coming years, noting that some of its coal plants are scheduled to be retired after the wind credit becomes less attractive but before the solar tax credit is scaled back.

“Solar, just like wind, will continue to improve in cost,” he said. “The best time to bring on a lot of large scale solar will be towards the end of this decade.”

Advances in Turbine Technology Offer More Location Options

Recent advances in turbine efficiency are also driving wind power development. Until recently, projects only made sense in the windiest areas.

“Now, wind projects can be built in areas of medium and lower wind speeds,” said Navigant Research analyst Jesse Broehl.

Some wind farm owners plan to use the federal tax credit to replace older turbines, a practice known as repowering.

NextEra Energy, for instance, said in October that it will spend at least $2 billion to $2.5 billion on repowering projects over the next four years. The company also plans to develop up to 3.8 GW of wind projects over the next two years, compared with up to 1.3 GW of solar.

Those announcements and others should benefit turbine providers General Electric Co, Vestas Wind Systems A/S and Siemens AG, which account for more than three quarters of the U.S. turbine market. In the third quarter, GE said it received $404 million in orders to repower U.S. wind turbines.