Wind Energy’s New Year Celebration will be Short-Lived

Ken Silverstein | Jan 02, 2013

Share/Save  

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


Related Topics

Comments

Not only wind is not blowing

Not only wind is not blowing all the time.  It is blowing in the night when no one needs the power.  The economics of Wind generation cannot not substain itself.  The tax credit only provide subsidy to a rush of development benefiting the developers. With broken blade and gearbox, I don't know how much research has been done in counting the economic life of such turbines.  

We all like job creation.  But we cannot just create jobs by hiring people to conduct non-economical activities.  As it stands now that wind generation is not an economic industry, putting more people in the industry is just a misallocation of resources.

Numbers off a little?

According to the USEIA Electric Power Monthly, table 1.17.B, wind generation to date as of end OCT2012 was 114,401,000MWh making the total paid out to date about $2.51bn assuming all wind generators are getting the PTC.  There is a large difference between their tables 1.17.A and B and I suspect they are one digit off in table A as the capacity factor, if that table were accurate is even more abysmal than normal wind capacity factor.  What the proponents of wind seem to avoid saying is there is a huge difference between a tax credit and a deduction from income for tax purposes.  They also seem to avoid pointing out the inefficient use of construction materials inherent in wind generation.  As a single for instance, wind uses an average of around 110 cubic meters of concrete per MW nameplate capacity.  That is roughly 150 odd tons of concrete per MW for something with an average generation of about 0.32 to 0.35MWh per nameplate MW capability.  What does one think the proliferation of wind has done to the price of concrete that all businesses needing it pay?  What does one think the proliferation of wind has done to the price of steel, copper, and rare earth elements.  And all that for a resource that typically generates power when it is least needed.  What does one think that does to the electricity market in those areas where wind has heavy penetration?

Numbers

 

The difference in the tables is that 1.17B is the cumulative amount for 2012 through October vs. 1.17A which is  for the month of October 2012 compared to 2011. 

The PTC is not paid out to all the production.  The 2.2 cent PTC pays for 10 years of the expected 20 year life of a project, hence some older wind farms contribute to the production total without subsidies.  Also some wind farms receive subsidies in the form of  grants or income tax credits which are front-loaded.

An explanation of why tax credits are different from tax deductions would be appreciated.  Both are listed as tax expenditures by Congressional economic research entities like the Joint Committee on Taxation.  Any tax expenditure simply reduces tax paid.  The oil and gas industry promote the ruse that somehow there is a difference attempting to defend their 100 year old unique deductions that have cost several hundred billions of dollars over the years..

Also, I am not sure of the point you are making regarding the increase in construction material demand from wind development.