Tax credits extended for Cape Wind

When federal lawmakers clumsily avoided taking the country off the "fiscal cliff" Tuesday they simultaneously tossed a lifeline to the wind energy industry, including the proposed Nantucket Sound wind farm.

The legislation passed by Congress included extending production and investment tax credits for wind-energy projects to the end of this year.

If Cape Wind can begin construction by the end of the year, the company can access the credits, which are needed to keep the already high cost of the project's power from climbing to more than 23 cents per kilowatt hour.

"It is obviously good news that both these credits were extended," Massachusetts Secretary of Energy and Environmental Affairs Richard K. Sullivan Jr. said Wednesday.

Importantly the extension of the tax credits includes a change that allows companies to access the incentives as long as construction begins by the end of the year, Sullivan said.

Previously, projects had to be operational before the expiration of the credits to take advantage of them.

Cape Wind is expected to use the investment tax credit, which gives developers the option of recovering 30 percent of the cost of new equipment for a project with the exception of transmission infrastructure.

Although Cape Wind still faces legal challenges and has yet to announce financing arrangements, the project's developer has secured important agreements with NStar and National Grid for more than 75 percent of its expected output.

NStar delivers electricity to Cape Cod and Martha's Vineyard. National Grid serves Nantucket. The utilities have agreed to pay 18.7 cents per kilowatt hour for Cape Wind's electricity but without the investment tax credit that price will rise to 22.8 cents per kilowatt hour, according to the power purchase agreements for the project.

If neither tax credit were available the price of the power would jump to 23.5 cents per kilowatt hour in the project's first year.

The price of Cape Wind's power will increase by 3.5 percent per year after 2013.

Cape Wind's opponents have argued that the project's power will cost far more than power from other sources and that over the lifetime of the contracts, ratepayers will pay an additional $4 billion in electricity rates.

When the cost of Cape Wind's electricity is mixed with the utilities' other power supply sources the monthly cost to the average residential customer who uses 667 kilowatt-hours per month will be about $1.50, according to the companies. "What it does is it really brings some consistency to the project," Sullivan said about the tax credits, adding that banks and other financial institutions want to know the credits are in place.

There are no other offshore wind energy projects in Massachusetts that are anywhere near construction and likely to apply for the investment tax credits.

Sullivan said he believes that, while there is talk of phasing out the production tax credit sooner, the newer investment tax credit for offshore projects will likely be needed for about a decade to help get the offshore industry up and running.

The extension of the wind energy tax credits was a bone of contention in last year's presidential election with President Barack Obama supporting the incentives and his opponent, former Massachusetts Gov. Mitt Romney, opposing them.

Cape Wind spokesman Mark Rodgers said the company expects to begin construction by the end of the year but declined to comment further beyond a prepared statement emailed to the Times.

"The support to extend wind incentives by President Obama and Congress will help enable the U.S. wind industry to continue creating jobs and increasing energy independence in an environmentally sustainable way," he wrote in the statement.

Cape Wind is well positioned to begin construction and access the credits as long as the Internal Revenue Service doesn't change language it has previously used to qualify projects for the incentive, said Jim Lanard, president of the Offshore Wind Development Coalition, a trade group for the offshore wind industry.

The offshore industry will need the investment tax credit for some time, Lanard said, adding that talk has only just started about phasing out the 20-year-old production tax credit.

"We make the argument that the (investment tax credit) shouldn't be phased out before it is phased in," he said.

Instead, his organization and others like U.S. Sen. Tom Carper, D-Del. are seeking to have the investment tax credit codified as part of this year's anticipated comprehensive tax reform, Lanard said.

One idea is to tie the credit to a quantity of wind energy development such as was done in 2005 for nuclear power rather than to an expiration date, he said.

The extension of the tax credit provides the industry with some certainty in the near term, said American Wind Energy Association spokeswoman Ellen Carey.

A study by Navigant Consulting estimated that 37,000 jobs in the wind energy industry would be lost through the first quarter of 2013 because of the uncertainty surrounding the tax credits, Carey said.

Although she didn't know how many jobs had been lost so far Carey said the figure was in the thousands prior to Congress' action Tuesday.

There were 75,000 jobs in the wind energy industry at the end of 2011, she said.