The New Year may be ringing hollow for wind
energy developers even though they have secured a
one-year extension of their coveted tax credits. A
full-scale evolution will require a much broader tax
strategy, meaning that the one-year extension will
only add confusion.
The sector says that a six-year extension would
provide certainty. But the wind folks have released
public statements saying that Tuesday’s
congressional move to avoid the “fiscal cliff” has
saved 37,000 of the sector’s 75,000 jobs. Those
jobs, it adds, are tied to 500 manufacturing
facilities in every state.
“Now we can continue to provide America with more
clean, affordable, homegrown energy, and keep
growing a new manufacturing sector that’s now making
nearly 70 percent of our wind turbines in the
U.S.A.,” says Rob Gramlich, who is the
American Wind Energy Association’s interim chief
executive.
In 2009, Congress extended the wind production tax
credit until 2012. Or, developers could instead have
taken cash upfront totaling 30 percent of a
project’s cost. The production tax credit is 2.2
cents per kilowatt hour generated for 10 years. The
wind association says that the incentives have led
to record growth in the wind sector, which
represented 44 percent of all new electricity
capacity last year.
But the industry has also said that the on again-off
again nature of the tax breaks is causing boom and
bust cycles. Each time the credit has been allowed
to expire, economic productivity slows, the sector
says.
The tax incentives given to wind, in fact, are used
as political chits while bargaining. During the
latest round of negotiations, Spanish wind developer
Gamesa said that the iffy nature of political
talks and the subsequent uncertainty had forced it
to lay-off 165 workers in the Pennsylvania. Vestas,
meanwhile, had said earlier that an end to the
credits would force it to cut 1,600 workers.
The revised credit applies to projects started in
2013 but it will remain in effect for two years so
that developers will have time to finish them. “Even
though the late timing of the extension will result
in a significant reduction in 2013 installations
relative to previous years due to the time it takes
from when an order is placed to project completion,
the U.S. market will nonetheless be stronger as a
result of the (credit’s) extension,” says
Vestas.
Revised Thinking
Critics of the wind tax credits will argue that they
do nothing more than distort the energy market
place. That is, investment capital that would
otherwise flow to where it would be most productive
is now re-directed it to where it is less efficient.
Opponents of the breaks, which total $1 billion
annually, say that wind power will never be
competitive given that the wind does not blow all
the time.
The industry counters such thinking by saying that
the tax credits have never been intended to be a
permanent crutch but that they have been necessary
to improve turbine technologies and to reduce the
cost of wind development. To that end, they are
succeeding as the price of the blades has fallen
dramatically while their quality is rising,
resulting in greater electricity output.
Wind energy, though, has become evermore
politicized. Conservatives have viewed its tax
credits as endemic of government waste and of the
“wrongheaded” approach to energy generation in this
country. Progressives, conversely, say that such
government support is integral to President Obama’s
New Economy, emphasizing that coal and natural gas
have been on the public dole for decades.
Nevertheless, the American Wind Energy Association
changed its lobbying tactics toward the end of 2012,
sensing that the credit may lapse. So, it sent a
letter to members of Congress saying that it would
accept a gradual six-year phase-out of its tax
incentives. Basically, the amount of the credit
would be reduced by 10 percent a year until it would
stop altogether in 2018.
The association credits its developers for
contributing $15.5 billion a year to the American
economy -- money that it says has been essential to
job creation and economic growth, and which exceeds
the annual cost of its tax benefits. Abruptly
stopping those incentives makes no sense while
slowly ending them is a more responsible move, it
adds.
“With the policy certainty that accompanies a stable
extension, the industry believes it can achieve the
greater economies of scale and technology
improvements that it needs to become
cost-competitive without the production tax credit,”
the association’s letter says.
The wind sector got some breathing room New Year’s
Day. But that reprieve will be short-lived, giving
way to additional uncertainty by summer. Developers
will thus push for a longer but less generous tax
incentive program.
EnergyBiz Insider has been awarded the Gold for
Original Web Commentary presented by the American
Society of Business Press Editors. The column is
also the Winner of the 2011 Online Column category
awarded by Media Industry News, MIN. Ken Silverstein
has been honored as one of MIN’s Most Intriguing
People in Media.
Twitter: @Ken_Silverstein
energybizinsider@energycentral.com
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