Offshore developers hasten to make use of fading US tax credits
by Karl-Erik Stromsta in Boston
Developers are pushing Massachusetts to launch its second offshore wind request for proposals sooner than June 2019, arguing that by doing so their projects can claim the fading investment tax credit (ITC) – offering a better deal for ratepayers.
Until the end of 2016, the ITC was worth 30% of an offshore wind farm’s cost. But like the production tax credit (PTC) which remains the focus of the US onshore wind sector, the ITC is stepping down, and will expire for all new projects after 2019. Once qualified, projects have several years to reach completion.
Vineyard Wind, owned by Iberdrola’s Avangrid and Copenhagen Infrastructure Partners, qualified its 800MW winning project in Massachusetts’ first offshore tender for the ITC, and hopes to do so with its next project as well.
“It’s one of the reasons why we’re making the project as early as we possibly can, to try to maximise the use of those federal tax credits to the benefit of consumers in Massachusetts,” Jonathan Cole, managing director for offshore wind at Iberdrola Renewables, told the US Offshore Wind conference in Boston on Thursday.
“That’s how we managed to get the price down so low,” Cole says. “But we have to recognise that in future [the ITC] is not going to be available. The tax credit system’s coming to an end, and that’s not going to change.”
Cole says he’s confident that the myriad factors driving down the cost of offshore wind will more than offset the ITC’s expiration, from the jump to 12-15MW turbines to more efficient installation techniques and larger economies of scale. “I don’t worry about the [ITC] in the long term for the industry,” he says.
Still, both offshore developers and the states looking to attract their investment dollars are moving quickly to take advantage of the ITC while they still can.
The ITC is worth 18% of a project’s value if it enters construction this year, and 12% next year – of “significant” value for an early offshore wind farm, notes Francis Slingsby, Orsted’s head of strategic partnerships in North America.
Having just concluded the largest offshore wind tender in US history, some might understand if Massachusetts held off on launching its second RFP until next June, the latest point by which it must do so.
Moreover, later this year the federal government will auction off two additional zones south of Massachusetts, so holding off on launching the second RFP until next summer would give the new zone owners more time to assess their sites.
“But delaying is worth a lot as well,” Slingsby says, given the fading ITC. Expediting the second RFP would “send a signal” to the industry that Massachusetts intends to remain the US offshore leader, he says.
Massachusetts is not the only state with its eye on the ITC clock. New York also had the ITC in mind when it timed its plans to launch solicitations for at least 800MW of offshore wind in 2018 and 2019.
“We’re quite eager to move quickly through the process” to benefit from the remaining ITC, says Doreen Harris, director of large-scale renewables procurement at the New York State Energy Research and Development Authority.