The federal Production Tax Credit (PTC) for wind energy was allowed to expire at the end of 2013. Wind energy investors were hardly blown away by the ending of the incentive program as production credits have expired several times in the past only to be extended sometime during the following year. To the surprise of very few, the wind energy Production Tax Credit was extended in early April, which will help to support clean wind energy, which has become unnecessarily dependent on federal incentives for at least another two years.

Dependence on subsidies
Though not seen all across the U.S., wind energy is growing, and has accounted for almost one-third of new power capacity in the U.S. over the past five years. Wind power has been shown historically to depend on support from the Production Tax Credit (PTC), and though the cost of wind power has been steadily dropping over the past half-decade, it still appears to be heavily reliant on government incentives.

Source: American Wind Energy Association

The Renewable Energy Production Tax Credit has encouraged wind power installations by providing a 2.3 cents per-kilowatt-hour tax credit for energy production good for ten years after the date when the facility was put in place. With the new extension in place through the end of 2015, tax credits are scheduled to potentially continue through 2025 for new installations.

When combined with dropping costs, the PTC has helped wind power remain competitive with the rest of the renewable energy world. In the long run, however, wind power will have to prove that it can compete in particular with solar power without government assistance as solar costs continue to drop in-line or faster than wind power costs while at the same time increasing panel efficiencies to provide an even stronger long-term return. That said, wind power is not without the capacity to improve turbine performance as demonstrated most recently by LM Wind Power's project to develop new, flexible tip length blades with the potential to cut wind energy production costs by up to 10%.

Who wins when wind wins?
Finding a pure play in wind energy is surprisingly difficult, though extending the PTC will have a positive impact for wind technology companies, utility companies, and potentially consumers as well.

General Electric (NYSE:GE) is the largest manufacturer of wind turbines in the United States, but wind nonetheless makes up only a small portion of the giant company. Wind energy is part of the company's Power and Water segment, which made up about 17% of the company's 2013 revenues, actually a decline from the portion of overall revenue generated by the segment in the previous two years.

Despite the segment encompassing energy generation from gas, wind, oil, and water, revenues for the segment have in the past been largely affected by the volume of wind equipment sales. Strong sales in 2012 helped drive segment revenues higher in 2012, while declining sales of wind equipment in 2013, perhaps in part due to the pending PTC expiration, contributed to dropping segment revenues. The extension of the PTC can only help GE moving forward over the next two years.

The PTC provides a 10-year payback, so the expiration at the beginning of the year had no real impact on existing wind energy infrastructure of utility companies. The PTC will impact the likelihood of utilities expanding their wind holdings in the near future, however, and was likely a large contributing factor to the agreement between Berkshire Hathaway's MidAmerican Energy and Google (NASDAQ:GOOG) for the supply of up to 407 megawatts of wind energy to Google's Council Bluffs facilities.

Google has a strong history of looking to renewable sources to provide energy for their facilities, and the latest agreement could be a selling point for other companies looking to MidAmerican Energy and other utilities to expand their renewably sourced energy.  Extension of the PTC will only help to grow the number of wind energy projects, including new builds for consumer use of wind power.

The takeaway
The PTC has been extended for short-term intervals since its start over twenty years ago. Wind energy today still shows a heavy reliance on government subsidies, but it is difficult to predict how it would fare with its competition on an even playing field with subsidies removed across the board.

As that is unlikely to ever be the case, investors should expect that wind energy will remain reliant on the PTC in the short-term. The new extension brings new life to the industry, but if allowed to expire in 2016 it will be interesting to see if the dropping costs of production would be enough to let wind sail on its own.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.