Production Tax Credit Tops Wind Energy's Priorities

Bill Opalka | Jun 04, 2012

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Failure to extend the production tax credit would devastate the domestic wind energy supply chain and virtually wipe out wind power development next year, officials stressed during the June 4 opening of the American Wind Energy Association (AWEA) annual conference in Atlanta.

The wind industry group rolled out an array of political supporters from across the spectrum to show widespread backing for the PTC in an election year.

The conference theme is “Manufacturing the Future Today,” with an emphasis on clean energy employment, particularly in the Midwest and South. The industry expects to set a record this year with more than 10 GW installed, but little activity next year without the certainty of the credit.

Domestic manufacturing to supply the industry has grown since the last expiration of the credit with less reliance on imports, as foreign-based suppliers have set up shop in North America.

“This time is very different, from all of our perspectives,” said Ned Hall, a past AWEA chair and global vice president at AES (NYSE: AES). “We’re not importing equipment. It’s not jobs being lost in Europe, but throughout the supply chain, it’s American jobs.”

“Right now, we can’t contract for long-term power beyond 2012 because no one knows what is going on,” said Gabriel Alonso, CEO of EDP Renewables.

The federal production tax credit expires at the end of the year and is currently bogged down in Congress. Projects put online this year are qualified for 10 years for the 2.2 cent per kWh credit.

AWEA says the industry has grown to support 500 manufacturing companies and overall employment in the supply chain, development and other segments tops 75,000. Democratic and Republican governors were on stage to take credit for some of those jobs and to tout clean energy manufacturing policy successes. Those policies include state tax breaks.

Gov. Mike Beebe, Democrat of Arkansas, said 2,000 manufacturing jobs in the state from its own policies and the long-term PTC-generated demand helped it weather the economic downturn. “Get these things done, and for more than one year,” he said in reference to Congress.

Kansas is on pace to add 1,400 MW this year, and lead the nation, receiving $3bn in investment, said Republican Gov. Sam Brownback. “We want to be known as a renewables state, but we have to balance the economy and environment,” he added.

In a press conference after the opening events, he floated an idea not often mentioned in these discussions: a four-year phase-out of the PTC to give the industry certainty and time to prepare for its eventual end.

Heather Zichal, the deputy assistant to the president on energy and climate change for President Obama, reiterated administration support for the PTC extension as a “top 5” priority for Congressional action before the August recess. Obama highlighted this priority with a visit two weeks ago to Iowa-based wind blade manufacturer TPI Composites and a meeting with wind industry officials to help set the legislative agenda.

A bipartisan coalition of 100 Congress members is supporting a four-year extension in the U.S. House of Representatives. Seven senators are sponsoring legislation for a two-year extension in that body.

Ted Turner, Atlanta native and founder of CNN, tried to draw parallels between the cables news industry taking on the broadcast networks and renewable energy starting to compete with entrenched fossil fuel power sources.

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Comments

forever is a long time to pay PTC's

PTC's have tripled what was originally projected to around $9.6 billion. How long can we keep tripling those kind of numbers?? Jobs? Let's be honest. Michigan reported 79,771 "green jobs" and received $82 million in federal stimulus. However, of all those jobs, 183 total jobs in wind/solar were created in 14 companies = $188K per job. The rest of these "green jobs" are with garbage collection, etc. or just not accounted for. And just last week, Energy Biz reported in "Wind not a silver bullet" that there's a good chance that all that off peak wind is just being "dumped"!! Come on - you want billions more of taxpayer/ratepayer money when it gets dumped anyway? NO, NO, NO.

Are Subsidies Equivalent?

I am so tired of hearing –‘ all energy is subsidized’.    Using the CBO Report referenced:

1.       For the last three years renewable energy has received the ‘lion’s share’ of the money, in 2011 $13.9B, vs. $0.9B for nuclear, $1.5B for Energy efficiency, and $2.5B for fossil – oil, gas and coal. 

2.       These ‘subsidies’ are not comparable.  The PTC is a direct subsidy; the producer gets roughly 75% of his revenue from the sale of electricity, and 25% from the government thru the PTC.  Most of the fossil and nuclear ‘subsidies’ are tax credit for important public policy objectives, not direct hand-outs.  For example, the nuclear ‘subsidy’ is a decommissioning tax credit; that is as the plant operates utilities are required to set money aside in a fund that will eventually pay for the plant’s decommissioning.  I hope everyone agrees this is good public policy.  The ‘subsidy’ is allowing them to not pay taxes on the money set aside.  (GAP doesn’t recognize decommissioning as a liability because the expense is so far out in time and thus considered speculative.  Congress had to specifically authorizing this tax treatment, i.e. ‘subsidy’.)  And the accelerated depreciation for fossil exploration is intended to encourage exploration and thus a reliable, long-term sources of energy, e.g. gasoline, to run our economy; I think it too has a significant public policy benefit.

Yes these are large complex enterprises with industry specific incentives – but the PTC is much larger and I think has significantly more dubious public policy benefits. 

PTC Not Equivalent--Not the Point

1.  Since you decided to parse Table 1 on page 3 of the CBO report, the PTC is part of the 1.4B for all renewable electricity resources in 2011.  The next line is a number that will go away after 2.3B is spent.  The rest all expired at the end of 2011, including the bio-fuels tax preferences.  We are talking about the wind PTC, which is only part of the 1.4B.  So going forward,  the rest is irrelevant for our discussion.

2.  Agreed-- regarding it being good public policy to support existing fossil fuel and nuclear tax preferences you mentioned.  You may have noticed the wind lobby is also not taking issue with them either.  For some reason  we have a bunch of politicians stating we should not renew the PTC  to "level the energy playing field" while at the same time they deny that the fossil and nuclear tax preferences exist.  This denial is why you will continue to tire of hearing about all energy being subsidized. 

3.  Agreed-- the dollars per unit of energy for the PTC are greater.  The PTC needs to be modified into a smaller amount/unit and rolled into permanent legislation like some conventionals have received for 100 years so it also can also have "significant public policy benefit" which requires an act of Congress to repeal.   Seems like a renewable electricity source is just as noble as a long term source of gasoline.

PTC for "renewables"

If tax credits for "renewables" have exceeded those for oil and gas since 2008, we should be looking at how much power we get for each. If we don't get much power from renewables compared to fossil fuels, and if the value of intermittent power is a fraction of on-demand power (which wind and solar cannot provide), why continue to dig ourselves deeper and deeper into a hole? Better to devote some of those resources to distributed energy--including renewables--that take homes, businesses and neighborhoods incrementally off the grid, and put off the day when we have to make another colossal public investment in transmission infrastructure.

PTCs should not be extended

Will this desire to feed at the public trough never end?  The mere fact that wind needs the PTCs to survive tells us very loudly and clearly it is not a competitive power technology at this time.  The mass deployment of wind is interfering with the natural order of the free market.  Many older coal plants and gas-fired steam plants would have been replaced by newer, more efficient, and cleaner supercritical or ultra-supercritical coal plants and/or gas turbine combined cycle power plants based on the costs of fuel and maintenance.  Instead government subsidies, using taxpayer money, have been available to finance low capacity factor, non-dispatchable wind and solar facilities that have destabilized the normal process of free market competition making financial payback projections too risky for investors.  Since ultra-supercritical coal has the ability to reduce the CO2 emissions per MWh by 23 to 35% compared to more conventional coal plants (and even close to 50% for much older coal plants) and GTCC can easily cut CO2 emissions by 60% per MWh one could readily argue that subsidies for wind energy have acted at counterpurposes to the intent of the green energy program.

I can state for a fact that I will be very unlikely to vote for anyone who votes to extend the PTCs and cash grant programs.  Put a fraction of the money spent on PTCs and cash grants into dedicated R&D and we will more likely get significant results, if there are any to be had, than we will by subsidizing the deployment of uncompetitive technologies.

What about fossil fuels and nuclear subsidies?

The question for you and all of those ready to end the PTC and other energy subsidies, are you also ready to end energy subsidies to the fossil fuel and nuclear industries?  The non-partisan Congressional Budget Offices' March 2012 issue brief on 2011 energy subsidies http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-06-FuelsandEnergy_Brief.pdf lists all on the same data table because they all do the same thing---reduce taxes paid. 

One is no better or worse than the other except that  oil and gas have been receiving theirs since 1913 and renewables since 1980.  Also in the report is a chart showing only since 2008 have renewable's subsidies exceeded that of fossil fuels.   Guess that is why ONLY the renewables are now being targeted.

You might want to review that document again

Notice that the fossil subsidies listed pretty much say something like '...expensing...' which means they spent funds to find or develop a fossil energy source that then yielded energy.  They got to deduct the expenses from their revenue and paid taxes on the rest.

With a PTC a renewable energy generator collects tax money to make up for the fact that he does not have a profit because his technology is not competitive.  The whole joke of it is that some of the biggest investors in renewables are the fossil fuel producers so many renewables promoters vilify for making a profit.  So the PTC program is allowing them another way to reduce their taxes paid on a dollar for dollar basis. 

Lastly, you need to take a good look at how much energy renewables provide for the money they get.  In 2011, wind generated only 2.9% of all the MWh generated in the US.  Natural gas generated 23.9%, coal 42.2%, and nuclear 19.3%.  Now go back and look at the CBO's charts and look at how much who got.

Wind energy is a boondoggle.  Consider this:  If you look in the EIA statistics you will find that wind generation in MWh increased from 1.3% of the total to 2.9%.  In that time, coal-fired generation decreased by 13.7% but coal consumption for power generation decreased only 10.5%.  The reduction in market share for coal generation was roughly 6%.  The market share for gas increased roughly 3.2%.  If one looks at MWh generated, gas generation increases accounted for about half of the decrease in coal generation (overall total generation was 0.33% lower in 2011 than 2008) and the increase in wind generation is pretty close to one quarter of coal's loss.  In general this means gas generation supplanted coal generation and the coal plant was shut down whereas wind generation cannot supplant coal generation because it is not dispatchable and not avaiIable 24/7.  I am not sure what the coal generation vs coal consumption numbers tell you but they kind of tell me, generation from coal has become less efficient, quite possibly because wind, which is most available off-peak, is causing coal plants to run part load and impacting their heat rates.  This means they emit more CO2/MWh.

The tax advantage of a PTC comes without ongoing economic activity--ie buying fuel, buying other supplies and services etc.  So getting a PTC allows the reciever to get a tax break without engaging in any activity that creates jobs and/or profit for other companies which then have to pay their taxes.  PTCs are the federal government's gift to an industry which cannot compete in a free market as opposed to tax breaks which allow a company that spends money to compete in a free market to expense some of the money they spent in competing.  If they do not make profits then they pay less tax but they also go out of business.  If the recipient of the PTC does not make any money, they do not pay taxes and get paid the PTC anyway.  It is a BOONDOGGLE any way you look at it especially since a number of studies indicate no significant decrease in CO2 emissions for European countries heavy into wind investment.