Wind Energy at Vortex of Political Spin

Tax Credits are Chits

Ken Silverstein | Jun 05, 2012


The wind power industry is caught in the political whirlwinds. Once again, the sector finds itself at the vortex of a spin battle between partisans, although not between all Republicans and Democrats.

The debate centers on renewal of the production tax credit that will expire at year’s end unless Congress renews it. That’s the 2.2 cent per kilowatt credit given for 10 years to producers. The issue will take center stage during the presidential contest, with the incumbent saying that it is needed to help spawn jobs and to ease reliance on fossil fuels. The contender, meanwhile, will argue that such government subsidies have failed and that un-aided wind and solar power are illusory dreams.

“In place of real energy, Obama has focused on an imaginary world where government-subsidized windmills and solar panels could power the economy,” writes Mitt Romney, the presumptive Republican nominee, in his blog. “This vision has failed.”

While the tax credit may very well lapse for a period of time -- a proposition that does create uncertainty and chill economic activity -- history has shown that it will eventually be re-installed. And with each occurrence, wind energy grows: Nearly 50,000 megawatts of wind power is installed here with another 8,300 megawatts under construction. All that is taking place in 31 states and it is responsible for thousands of jobs.

Wind and solar credits are typically used as chits while trying to get bigger energy proposals enacted. In other words, if the breaks given to, say, oil companies are preserved then certain lawmakers will bend on the green incentives as well. Despite the tumult, production costs have dropped 80 percent over the last 20 years, which the wind industry says is partly because of a proactive government.

Romney’s political dilemma is that he needs to win key states that support the wind  industry -- states such as Texas and Iowa where Republican representation in the U.S. Congress for those breaks is strong. In fact, such a bill to extend the production tax credits is now circulating on Capitol Hill. It has more than 100 co-sponsors, a fifth of whom are Republicans. It is supported by key business groups such as the U.S. Chamber of Congress and National Association of Manufacturers.

“Right now, we can’t contract for long-term power beyond 2012 because no one knows what is going on,” says Gabriel Alonso, chief executive of EDP Renewables, at the American Wind Energy Association’s annual meeting.

Re-thinking Policy

The Obama administration’s says that getting the tax credits re-enacted is one of its top policy goals, emphasizing that they are essential to helping fledgling but promising movements. To that end, the president has said since coming to office that the green economy will provide the next-generation of jobs.

The wind sector has installed 35 percent of all new American electric generation over the past five years, adds the American Wind Energy Association. Already, the industry employs 75,000 people. It could hire another 25,000 if the wind credit is allowed to live on. If not, a third of those existing and potential jobs would be lost, not to mention the billions in economic activity, the industry adds.

Critics of that thinking, including Romney, are pointing out that such growth levels are predicated on government support. They reason that if the clean technologies were truly competitive then they would not need any preferences. Free markets, in fact, dictate that the businesses with the most creative and marketable ideas will win -- not the ones that are chosen by government bureaucracies.

Skeptics are also noting that Western European nations that have given preferential treatment to their renewable energy sectors are cutting back. Germany, Italy, Spain and Great Britain are trying to balance their desires to cut carbon emissions and promote green energy growth against much tougher economic times.

To illustrate that point, Romney is expected to highlight the collapse of the failed solar energy company, Solyndra, which received $535 million in federal loan guarantees. “It’s not a symbol of success but of failure,” Romney says, as reported by the Los Angeles Times.

Be careful. The federal incentives work both ways -- and the Democrats have plenty of fire power that they will also use. Such programs deserve scrutiny and need to be re-examined, although they should not fall victim to needless political warfare. As such, the wind credit is now ensnared in the sniping but the incentives will -- eventually -- make it out alive.

EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

Twitter: @Ken_Silverstein

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Fuel Poverty in U.K.

Published today, June 6 2012. "At a time of rising fuel poverty, people shouldn't have to subsidise these developments.." Chairman of the council's committee added: "This is not about energy efficiency or even wind farms, it is about subsidy farming: businesses getting rich from the public and in particular those most effected by fuel poverty." Evidently the folks in England know what they are talking about, and have had enough. Do we have to repeat mistakes made in Europe? Stop the PTC now.

Billions more every year for HOW much energy?

Look at the chart for exactly how much electricity that wind actually provides: 0.9% in 2010. Wind does not, and cannot provide significant baseload power. Why all the subsidies? Look at how high the federal subsidies are for wind and solar compared to all other subsidized fuels: wind got four times more than all other fuels (excluding solar) combined! A very expensive addition to baseload power generation! Last summer, what happened during the heatwave in Texas? Not much wind, even in this high wind capacity state, so that 4 natural gas plants had to be reinstated to compensate for the lack of wind. Hype on jobs is just that, hype. It turns out that the "fine print" of the 2.7 million green jobs created, 736,663 were in waste management or mass transit. In Michigan only 183 jobs were created in wind. PTC's should be taken away now, because it won't get any easier to wean wind developers. Borrowing more than half of these PTC's from China (who also is turning away from wind this year) and increasing our debt will not create jobs for all those mandated to fund this disaster.

Energy Subsidies

Funny, the posters here seem to have forgotten the 20 years of federal government incentives for drilling for shale gas via the Section 29 tax credit for unconventional gas from 1980-2000.

utility-scale renewables fledgling but promising?

The Obama administration must have a better argument than that wind and solar farms are "fledgling but promising movements." If since 1980, when the credit began, the PTC has been unable to lift these technologies out the fledgling but promising category, how can anyone with a straight face conclude they will be able to do so in the foreseeable future?

The real spin

I’m seeing more political spin in this article than I am seeing in Washington on this subject.  The real solution to removing this industry from the political spin machine is to eliminate the subsidies. 

If we are to ever have limited government then we need to forego near term convenience and limit the areas of our life in which government operates.  One of those areas that our constitutional republic should not be operating in is picking winning and losing technologies for energy supplies.  The market is a much more efficient mechanism for accomplishing this.  Do we really think a bunch of lobbyists and people looking for better pricing for their product so they can make billions in profits have our best interests in mind?  These are the people that are using our tax dollars to finance their profits.  That is not a free market.  That is stealing.

Every time the government involves itself in an industry through subsidies all it does is skew the economics and alter the economic signals regarding pricing from suppliers and buyers.  This does not create more efficiency, only less.  We did not become the world’s industrial super-power by taking this approach.  If we want wind to really succeed in America it will do so only when the government removes itself from the equation and the equipment suppliers are forced to lower their costs to compete with other energy supplies in the market. 

Nice Post

I would add that the availability of subsidies encourages high prices. We see the same in college tuition where the increases track the availability of loans and grants.

The engine of innovation has always been necessity. Remove the NEED for lower prices and innovation wanes.

In spite of arguments to the contrary, human nature is no different today than it was at the time Adam Smith elegantly explained free market economics in Wealth of Nations. Modern sophisticates cannot and will not manifest that which naturally evolves from free markets (where they are allowed to exist absent government meddling).

Sorry, but PTCs and grants for wind and solar should go

It is frustrating to hear people continuing to compare the expense deductions given to fossil fuel industries to tax credits given to wind and solar.  For the fossil industry to get their 'subsidy', they have to build equipment, utilize it to search, develop, and produce fuels that are used by others to make electricity, plastics and other petrochemicals we need (including some medicines).  All this creates jobs, peripheral businesses, and economic activity--not just construction jobs but continuing jobs, not just temporary businesses but continuing businesses, not just temporary economic activity but continuing economic activity .  The jobs, peripheral businesses, and economic activities result in continuing tax revenues to the local, state, and federal governments.

There is a lot of construction activity related to wind farms but not much ongoing supply because there is no fuel supply to be kept up.  The operating and maintenance forces for wind are small compared to fossil power, especially coal plants and to a lesser extent combined cycle plants.  There are few peripheral businesses required compared to fossil plants--valve suppliers, gasket suppliers, fuel suppliers, maintenance contractors to work on equipment not found in wind farms.

Then we have to look at just how effectively we are using construction materials--not just how much is required, which is a lot on a per MW capacity basis, but what we get from that usage.  A wind turbine uses about 110 to 130 tons of reinforced concrete per MW of capacity.  They use about 133 tons of steel, copper, and other materials per MW.  This is, according to a study I read about 8 times the amount of concrete/MW and 13 times the amount of construction metals in a nuclear facility.  But, wind turbines have a typical capacity factor of only about 30 to 32% as opposed to the 90 to 92% for a nuclear facility.  While all this concrete and steel making generates a lot of construction related jobs, the jobs are temporary.

The final frustration is that the comparison is not accurate, at least in the case of gas of oil & gas industries as there are many more uses of oil and gas than producing electricity.  It is arguable that virtually the only purpose for coal use is generating electricity as the price for converting it to other fuels is too high.  In a strictly competitive generation market, the fossil generators do not get the PTCs but have to compete against wind generators getting $22/MWh from the government.  That is the fuel cost for a typical GTCC operator at $3/MMBTU.  Why on earth would anyone in that market build a new facility of this type especially since wind generation over the years will be highly unpredictable?  Instead, they will build simple cycle gas turbines or utilize older, existing, less efficient, and more polluting plants to provide backup for the wind energy.  The result, wasted fuel and more CO2 emissions than would have been the case without the wind farms.

If wind turbine prices have dropped so much, why in the world did we not wait until the R&D had been done to get wind competitive before deploying it?

Europe is cutting back on subsidies for wind and solar, China is diverting resources from wind and solar to concentrate on nuclear and hydro and they already have much of their resources directed at coal-fired power.  If we continue down the course of giving away taxpayer money to less effective, uncompetitive generating technologies our manufacturing industries and our economy will get the short and smelly end of the stick.

It is madness to continue down this road until more R&D has been done to get the cost /MW down to competitive levels.  Solar PV has been around for a long time--and so has wind--without the prices getting competitive despite the continuous promises of 'only a little longer'.  The money put into renewables, if put into nuclear, ultra-supercritical coal, or GTCC would have resulted in substantial decreases in CO2 emissions well beyond what wind has accomplished.

Madness, Yes...and No

The trajectory of wind and solar is madness...until you look at the ridiculous-but-real economic incentives (free federal money) for doing so. In that construct, it makes perfect sense for developers, engineers, construction personnel, etc. to suspend innovation and go with  currently available technology, even under an economically unsustainable model (all-things-green-at-any-price).

Unfortunately, what can never be calculated is the damage done by directing massive piles of free federal money toward a boondoggle policy (including the Smart Grid scam). The same money injected into the energy industry in a thousand different ways may have resulted in both an improved environment and better energy economics....which equals global competitiveness. What, for instance, might have been otherwise been done to curtail coal emissions, thus opening our nations vast reserves to growth in coal-fired generation? This is the invisible consequence of bad policy and I submit that the calculable costs pale in comparison.

The question of opportunity in coal is perhaps lost forever, now buried under EPA mandates leveled squarely at coal-fired generation. Meanwhile, the same Sierra Club that loved clean-burning natural gas at the high cost of $8/MMBTU has sworn an oath toward the death of $2.50 gas. Sickening duplicity.

' federal money...'

Unfortunately there is no such thing as free federal money.  The federal money comes from all the other taxpayers, both individuals and businesses not in the renewable energy fields,

The feds just slapped tariffs on China's solar PV products to create a more fair playing field for US and European solar PV manufacturers because China subsidizes their solar PV manufacturing.  Yet, the same government subidizes wind and solar to create an unfair market, particularly in those regions with a competitive only wholesale electricity market.  RPS's have the same effect--they just mandate that the region or state must buy the energy despite the higher costs.

Any way you look at it, the taxpayer/ratepayer is getting hosed to put more money in the pockets of the big boys.  It is theft, plain and simple.


Agreed. I usually put "free federal money" in quotes since there is no such thing...except in the parallel universe from which progressive policy manifests.

Wind Energy at Vortex of Political Spin

We all like to look at history, but the future, as any chastened investor knows, does  not necessarily follow history.   With one house of Congress solidly lined  up against renewable iincentives, we may well see how committed states are to their RPSs in the face of higher costs.