Earlier this month, Congress exceeded costs that expands the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) which have benefited breeze and solar, respectively. That is big news for the U.S. 73 billion in new investment and allowing as many as 8 million more households to access clean, renewable, affordable energy. In trade for the tax credit expansion, Congress has lifted the 40-12 months ban on crude essential oil exports that started with the 1970s Oil Embargo Crisis. Environmentalists and energy analysts (amongst others) are asking if this grand compromise is a good one. We think it is. The costs of solar and blowing-wind power have been falling and sharply for a long time gradually.
They are widely expected to end up being the cheapest way to create power in the U.S. 2020, as reported by Bloomberg, U, and Fortune.S. News & World Report. But we must make it to 2020 first, and between here and there has been a potential “valley of death” as incentives expired. 0.023/kWh PTC already expired at the end of 2014, and the wind industry experienced another devastating boom-and-bust routine along with it. And the 30-percent solar ITC was arranged to drop significantly to ten percent next year, numerous industry players predicting a consequent crash in what has been a robust and rapidly growing market. But that has transformed now.
1. The expansion gives wind and solar time to achieve parity (or better) with standard era without subsidy. According to Lazard’s Levelized Cost of Energy Analysis – Version 9.0 (PDF), released in November, the LCOEs for wind and solar have dropped 61 percent and 82 percent, respectively, over the past six years.
This puts unsubsidized best-in-class blowing wind and solar on par with or much better than new gas-fired generation already. 2. Big companies seeking power purchase contracts (PPAs) for large off-site wind and solar transactions will continue to see competitive prices. This season we’ve seen record-low PPAs for wind and solar tasks, such as Austin Energy’s recent utility-scale solar procurement at less than 4 cents per kilowatt-hour and the best wind flow PPAs clocking in at 2.50 cents per kWh. The PTC and ITC ensure that renewables tasks continue along their historical declining cost curve – the worthiness of the expansion goes beyond the existing prices of the technology; it’s about maintaining their trajectories.
- Saving for emergencies
- “Goldman Closes BRIC Fund,” The Wall Street Journal, November 9, 2015
- The exclusion under 137 for adoption expenses
- Development of the free cash stream
The PTC and ITC extensions are thus great information for the best corporations which have been generating significant capacity enhancements of green energy in the U.S., such as through the membership of RMI’s Business Renewables Center. They’ve signed offers to get more than 3 GW of new large-scale, off-site alternative capacity this season, and we’re hopeful of a more powerful 2016 thanks to continued PPA price competitiveness even. And it’s not only the Fortune 500 who’ll benefit. So will low-income customers, such as RMI is dealing with through eLab Leap, whether via utility-scale projects that contribute to a lower-cost grid, immediate subscription via mechanisms such as community solar, or other solutions.
3. Because the PTC and ITC decline over a period of years gradually, the industry can accordingly plan, staying away from boom-and-bust cycles. In previous years, the threat of PTC/ITC expiration (or their actual expiration, before renewal or extension) has resulted in major boom-and-bust cycles, such as for wind. However now, a predictable and continuous decline over a period of years gives both renewable energy industries clear glide pathways to a post-subsidy era, similar to Germany’s deliberate step down of its feed-in tariff.