Wind firms seek clarity from IRS

As U.S. lawmakers drafted a bill extending wind-energy tax credits in August, they revised a key clause that opens the door for a much bigger boon to the industry than just the one-year addition that was eventually passed.

To qualify for the tax credit that made wind energy the largest new source of electricity in 2012, projects must “begin construction” this year, a shift from earlier versions that applied only to projects that were complete and producing electricity before the deadline.

The Internal Revenue Service is poised to release guidance for developers so they will know how to show that construction has begun. Depending on how the term is defined, the Production Tax Credit may apply to turbines that are installed well into 2015, long past the Dec. 31 expiration of the credit, said Nathanael Greene, director of renewable energy policy at the Natural Resources Defense Council in New York.

“With a liberal interpretation from the IRS, it could extend activity more than a year,” Greene said.

Naomi Lovinger, spokesman for Nordex USA Inc., which has a turbine plant in Jonesboro, said it’s important for the IRS to release its guidance soon, because until wind-power developers know how the IRS will define start of construction, they can’t begin scheduling projects.

“Until they know what their scheduling needs are, they can’t turn to companies, to suppliers like Nordex,” she said. “Waiting for that piece of information is one of the key elements stopping orders for 2013.”

A spokesman for LM Wind Power, which manufactures large windmill blades at a factory in the Little Rock Port, did not respond to a request for comment.

The revised eligibility rule should keep turbine factories humming for years, analysts said, reviving the U.S. wind power industry, which is expected to slump 78 percent this year after a record 13,000 megawatts were installed in 2012.

The IRS is reviewing its policies for when a project will qualify for the tax credits, said Anthony Burke, a spokesman for the agency.

“It’s something we realize needs to be addressed,” Burke said Thursday. “This is being worked on.” He wouldn’t say when the review may be complete.

The IRS definition may be issued as soon as this month, according to the American Wind Energy Association. The tax credit offers 2.2 cents a kilowatt-hour for power from wind farms over 10 years.

The credit was set to expire at the end of December and lawmakers waited until Jan. 1 to approve the extension. Because of the “in-service” language, developers raced to connect turbines to the grid before the clock wound down, while curtailing new plans. Additions in the fourth quarter reached a record 8,380 megawatts, more than double that of any prior three-month period, before plunging this year.

Nordex’s Lovinger said the company has seen a drop in the number of orders this year because of the lateness of the tax-credit extension.

“Nordex and all of the companies have no orders at the moment, or essentially no orders for 2013, because everybody is essentially waiting for,” IRS guidance, she said. “Until the finances can be put together no one starts an order.”

Nordex has extended its business to some parts of South America to “cushion the lack of activity in the U.S,” Lovinger said.

Uncertainty last year over whether the tax credit would be renewed is a key reason the U.S. is expected to install 4,800 megawatts of turbines this year, Bloomberg New Energy Finance said in a November report.

“This extension allows the industry to reactivate development that had been on hold since midyear,” Tom Vinson, senior director of federal and regulatory affairs at the American Wind Energy Association, said in an interview. “The start-construction language provides a longer period of certainty than prior extensions.” Information for this article was contributed by Christopher Martin of Bloomberg News and Jessica Seaman of the Arkansas Democrat-Gazette.

Business, Pages 27 on 03/22/2013

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