60% PTC Extension: Forging solutions faster

Chris Brown
President of Sales and Service in the United States and Canada at Vestas
Published on 18th of February 2020

- This piece is by the VAME Market Intelligence Team -

All good things must come to an end. For most of 2019, that included the Production Tax Credit (PTC) that was set to phasedown from 40% to 0% of its full value. However, Congress passed a PTC extension in December of last year, promising more good things to come for wind deployment. But what does this mean for the wind industry and how is Vestas positioned to help project developers and owners maximize this opportunity?

The new 60% PTC cycle accomplishes three things. First, the 60% PTC will lead to more wind energy being built now, rather than later. Second, the PTC extension allows project owners to economically invest in the most innovative wind platforms, deploying top-tier technology faster. Third, this extension will grow an appetite for re-powering solutions for existing projects.

More wind energy faster

Tax incentives help us achieve ambitious pollution reduction targets and renewable energy goals, but they can be convoluted and incentivize short-term planning at the expense of long-term strategy.

The previous PTC extension in 2015 was designed in a step-down fashion, meaning each year the credit decreased by 20%. In order to get the highest credit, a project must either prove it started preliminary construction or purchase a certain amount of turbine components in the first year of a credit cycle.

However, different credit cycles overlap, creating a menu of potential PTC options for developers. Any wind project developer would look at the below menu and prioritize building projects with the highest PTC available in that year. For example, from 2017-2020, 100% PTC projects would be the clear winner.

The latest extension can be viewed as a step-up cycle, rather than a step-down. Projects that qualify in 2020 are doing so at a higher PTC level than projects that qualified in 2019. Developers now have three years in a row (2022-2024) with 60% PTC, whereas before, the PTC was 60%, 40%, and 0%, respectively. This allows developers more time to make investment decisions and provides utilities ample time to seek regulatory approval and/or investment partners.

The rapidly improving costs and performance of renewables have already led utilities, corporations, and governments to set renewable energy requirements and goals totalling well over 116 GW of demand by 2030. It is now likely buyers will pull a portion of that procurement into the new 60% PTC window to take advantage of wind’s extended economic advantage – and Vestas is positioned to help achieve these goals.

Better wind energy faster

Multi-year tax incentives improve project economics and enable wind companies to better manage project development uncertainty, allowing for more focus on technology innovation. In fact, Vestas invested $796 million in research and development in 2018, making it the leading turbine original equipment manufacturer (OEM) in innovation.

The latest result of Vestas’ investment and focus on delivering technology solutions is the new EnVentus platform. Using advanced modularity design, EnVentus offers unprecedented technology customization for unique markets and environmental conditions in the US and globally. The EnVentus™ family consists of three diverse turbines and is even more competitive in the U.S. with a new 60% PTC cycle.

Vestas also pioneers solutions across the wind value chain. For example, we have developed transportation solutions for some of the biggest onshore blades ever moved. In 2019, Vestas was the first OEM to move a 70m+ blade in the U.S. with the successful delivery of the V150, showing Vestas is best positioned to help customers capitalize on the new 60% PTC cycle.

Repowering solutions faster

Since the original PTC was passed in 1992, the wind industry has grown from less than 10 MW to 100,000 MW in 2019. As a result of this historical deployment, we now have wind projects in need of technology upgrades to extend their lifetimes and capabilities—a process known as “repowering.” There are also many projects shifting ownership as their original power purchase agreements expire.

Prior to the extension, projects reaching these milestones in 2020-2023 had limited time to take advantage of the PTC. Now, they are eligible for 60% PTC when they repower through 2024. 

The extended timeline allows projects installed in the 2011-2015 timeframe to more fully consider repowering options with 60% PTC and the latest Vestas technology – that’s an addressable market of over 30 GW. In this way the PTC extension not only powers new project development but existing projects as well.

At Vestas, we don’t abide by the proverb “all good things must come to end.” Rather, we capitalize on the good and use it to build the future. We look forward to assisting the industry in navigating this new PTC cycle by providing the best analysis, technology, delivery, and re-power solutions the industry has to offer.