Wind Energy at Vortex of Political Spin
Tax Credits are Chits
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.
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.