The wind industry is pushing for an extension of the renewable energy production tax credit (PTC), which is currently scheduled to expire at the end of the year.  The PTC has helped spur investment in wind by providing a tax credit of 2.2 cents per kilowatt hour of wind energy produced.  It has been successful in growing the industry, but new wind projects have slowed this year to due uncertainty over the PTC’s extension. Historically, when Congress declined to extend the PTC, new wind projects fall drastically.  

Despite the political battles surrounding the tax credit, the Senate Finance Committee voted 19-5 to extend the PTC as part of a proposed tax extender package.  The bill, called the Family and Business Tax Cut Certainty Act of 2012, would extend the wind production tax credit for one year, through December 31, 2013.

The bill also contains a change to the qualification requirements for wind facilities, which has received little attention despite its important implications.  Previously, wind facilities had to be placed in service before they could qualify for the PTC.  Under the proposed extension, facilities will be eligible for the tax credit so long as construction begins before January 1, 2014.

The new qualification requirement would extend the impact of the PTC beyond 2013 by providing an incentive to begin construction during the year regardless of when the facility becomes operational.  The change would also provide certainty to new wind projects.  Under the old qualification requirement, a wind facility had to meet an operational deadline on the back end of their construction schedule.  The new qualification requirement front ends the relevant date, providing greater certainty that the facility will be able to take advantage of the tax credit.  The new qualification requirements have the potential to reinvigorate the wind industry.

Extending the PTC has implications for job growth, a critical issue in November’s election. One recent study by the Natural Resources Defense Council predicts that extending the PTC could create 17,000 new jobs, while letting it expire could cost 37,000. Despite the impacts on job creation, the House and Senate will likely consider the tax legislation, including the extension of the PTC for wind facilities, after the November election.

*William Friedman, associate in McDermott’s Energy Advisory practice, contributed to this article.