Can The U.S. Offshore Wind Industry Survive Without A Federal Tax Credit?
The Trump administration’s decision to delay the Vineyard Wind project will impact the offshore wind developer’s ability to take advantage of a big federal tax credit that expires in December.
Democratic lawmakers say the administration’s decision was a political move to stall the project and could endanger the future growth of the industry. Lawmakers are scrambling to pass legislation to get the tax credit extended.
But some industry observers say offshore wind may be able to survive just fine without it.
Vineyard Wind, developer for the country’s first major offshore wind farm, had everything going for it this year. It secured over a handful of permits and was one of the first offshore wind developers that could take advantage of a federal investment tax credit worth millions of dollars.
That credit helped the developer negotiate a contract with three Massachusetts utilities to sell power at a very cheap price: 8.9 cents per kilowatt-hour.
"We wouldn't have seen the price be as low as we saw it without the investment tax credit," says former industry lobbyist Nancy Sopko who helped negotiate the credit when it first passed in 2012.
Douglas Stuver, Chief Financial Officer at Avangrid, one of Vineyard Wind’s joint venture partners, lost no time in promoting the project’s low-prices in a promotional video to investors this year.
"We were ahead of our competitors in qualifying for investment tax credits," Stuver says. "And by doing that achieve a much more competitive price than any of the other competitors."
The developer was on track to get the wind farm in operation by 2021. But the immediate future of the Vineyard Wind project is now uncertain.
The Interior Department recently announced it will delay the project to conduct a more “cumulative analysis” of its impact on commercial fishing and the environment. But the federal tax credit expires at the end of the year.
Democratic Congressman Bill Keating says the delay could have major implications for the Vineyard Wind project.
"It could cause serious problems in terms of financing capitalization," Keating says. "As well as throw into question the inability of any entity trying to meet the deadline to qualify for the investment tax credit."
Congressman Jim Langevin of Rhode Island is trying to push a bill through Congress that extends the tax credit by seven years. Langevin says he believes it will be more challenging for the offshore wind industry to succeed in this country without it.
"It'll be a no-brainer to go in the route of creating programs like offshore wind as more wind farms are developed and costs come down," Langevin says. "But until that time I think that the tax incentives are important."
There’s no question the investment tax credit helped spur interest in developing the offshore wind industry in the U.S. There are over a dozen offshore wind projects currently in the works from Massachusetts to North Carolina.
What is less clear is precisely how much of an effect an expiration of the tax credit could have on all that momentum. Sopko, who has left the lobbying arena to co-direct an offshore wind initiative at the University of Delaware, is actually pretty optimistic about the whole thing, even though she helped negotiate the credit.
"It's not the end of the world," Sopko says, emphasizing that the offshore wind industry is going to do everything it can to push the extension. "But if it does lapse, there is still a very promising outlook for the offshore wind industry."
Vineyard Wind is hedging its bets and recently hired its own lobbyist to try to get the project back on track with the Interior Department in order to start construction as soon as possible.
If that doesn’t happen, and the credit isn’t extended, consumers might be interested to know the cheaper kilowatt rates really wouldn’t mean that much of a savings for them anyway. At the end of the day, it was only expected to have a slight decrease on their monthly electric bill.