16 Nov 2012

Phase-out of wind production tax credit could help secure its extension

Written by Jim Pierobon

Amid the lame-duck rush to conclude the 112th Congress, the proposed extension of the 10-year wind energy production tax credit, or PTC, is one of the two big energy issues President Obama has to juggle as he prepares for his second term and tries to keep the U.S. economy from falling off the ‘fiscal cliff’.

The mounting layoffs by wind developers in the Midwest and Rocky Mountain states demonstrate how integral wind has become to those regions’ economies. And yet clean energy advocates are struggling to persuade enough lawmakers of its job-sustaining and -creating potential.

With a coalition of governors now turning up the heat on Congress and the President, there is a possible compromise which makes a lot of sense to writers here at The Energy Fix: extend it now for four years and phase it out new 10-year-credits after 2016.

The composition of typical GE wind turbine. CREDIT: GE Energy

2016 is the same year the solar investment tax credit is due to expire. That would be a clean way to frame, and conclude, these enormously helpful tax breaks. It would provide much-deserved certainly to wind project developers and remove the threat that the PTC will go away before a project can start generating electricity.

It would also communicate to wind developers that after 2016 there would be no more new help from the U.S. tax code.  (The PTC can last 10 years provided a wind ‘farm’ continues generating electricity.) A handful of wind developers, advocates and analysts I know are comfortable with that. That said, they’re unsure whether Congress will grasp the fiscal logic of the extend-but-phase-out approach.

The wind industry has been haunted continuously by the possible expiration of the PTC. Since Congress first created it in 1992, it has expired three times: in 1999, 2001 and 2003.

Equipped with the PTC, the wind industry has driven over $15 billion of private investments into the U.S. economy in each of the past five years, and has grown the U.S. manufacturing sector to include nearly 500 wind-related facilities, according to American Wind Energy Association (AWEA) Vice President Peter Kelley.

Across the U.S., wind companies have already seen over 3,000 layoffs announced publicly so far, citing the pending expiration of the PTC.  Navigant Consulting, in a study paid for by AWEA, anticipates that 37,000 wind industry jobs will be lost by early 2013 if Congress does not act promptly to extend the PTC.

Each of the three biggest companies building wind farms in the U.S. or making turbines and/or turbine parts, has announced or is poised to lay off several hundred workers:

  •  Vestas’ manufacturing workforce in Colorado has decreased from more than 1,700 to about 1,200 people at four factories, which includes attrition, relocations and reductions,” according to a company statement.
  • Siemens said it will reduce its US wind energy workforce by about 38%, citing adverse market conditions caused mostly by federal policy uncertainties but also by price competition from natural gas and sluggish growth in electricity demand.
  • GE’s wind turbine production is an integral part of its Ecomagination strategy, which generated $21 billion in revenues in 2011. GE Energy, which includes wind energy, has more than 100,000 employees in 100 countries.

Kansas Gov. Sam Brownback, a Republican, said the rush to build projects before the end this year led to 1,400 MW of new construction inducing $3 billion in private investment. “All of those numbers go to virtually zero next year. We have virtually no new wind operations next year,” he said during a conference call earlier this week and reported by RenewablesBiz Daily’s Bill Opalka.

In a letter to Congressional leadership Tuesday, Iowa Governor Terry Branstad and Oregon Governor John Kitzhaber urged Congressional leadership “…to take swift action to extend the PTC before the end of this congressional session.” Branstad, a Republican, is chairman of the Governors’ Wind Coalition. Kitzhaber, a Democrat is the vice chairman.

Oh, and the other big decision Obama needs to make: whether to approve the controversial Keystone XL oil pipeline. I could see an all-of-the-above strategy approving both the PTC and Keystone XL.  We’ll see.

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