The 2014 State of Wind Energy: Desperately Seeking Subsidies
With the growing story coming out of Ukraine, the ongoing search for the missing Malaysian jet, the intensifying Nevada cattle battle, and the new announcement about the additional Keystone pipeline delay, little attention is being paid to the Production Tax Credit (PTC) for wind energy—or any of the other fifty lapsed tax breaks the Senate Finance Committee approved earlier this month. But, despite the low news profile, the gears of government continue to grind up taxpayer dollars.
The Expiring Provisions Improvement Reform and Efficiency Act (EXPIRE) did not originally include the PTC, however, prior to the committee markup hearing on April 3, Senators Charles Grassley (R-IA), Michael Bennet (D-CO), and Maria Cantwell (D-WA) pushed for an amendment to add a two-year PTC extension. The tax extender package passed out of committee and has been sent to the senate floor for debate. There, its future is uncertain.
“If the bill becomes law,” reports the Energy Collective, “it will allow wind energy developers to qualify for tax credits if they begin construction by the end of 2015.” The American Wind Energy Association’s (AWEA) website calls on Congress to: “act quickly to retroactively extend the PTC.”
The PTC is often the deciding factor in determining whether or not to build a wind farm. According to Bloomberg, wind power advocates fear: “Without the restoration of the subsidies, worth $23 per megawatt hour to turbine owners, the industry might not recover, and the U.S. may lose ground in its race to reduce dependence on fossil fuels driving global warming.” The National Renewable Energy Laboratory released a report earlier this month affirming the importance of the subsidies to the wind industry. It showed that the PTC has been critical to the development of the U.S. wind power industry. The report also found: PTC “extension options that would ramp down by the end of 2022 appear to be insufficient to support recent levels of deployment. …extending the production tax credit at its historical level could provide the best opportunity to sustain strong U.S. wind energy installation and domestic manufacturing.”
The PTC was originally part of the Energy Policy Act of 1992. It has expired many times— most recently at the close of 2013. The last-minute 2012 extension, as a part of the American Tax Relief Act, included an eligibility criteria adjustment that allows projects that began construction in 2013, and maintain construction through as long as 2016, to qualify for the ten-year tax credit designed to establish a production incentive. Previously, projects would have had to be producing electricity at the time the PTC expired to qualify.
Thomas Pyle, the president of the American Energy Alliance, which represents the interests of oil, coal, and natural gas companies, called the 2013 expiration of the wind PTC “a victory for taxpayers.” He explained: “The notion that the wind industry is an infant that needs the PTC to get on its feet is simply not true. The PTC has overstayed its welcome and any attempt to extend it would do a great disservice to the American people.”
As recently as 2006-2007, “the wind PTC had no natural enemies,” states a new report on the PTC’s future. The Declining Appetite for the Wind PTC report points to the assumption that “all extenders are extended eventually, and that enacting the extension is purely a matter of routine, in which gridlock on unrelated topics is the only source of uncertainty and delay.” The report then concludes: “That has been a correct view in past years.”
The report predicts that the PTC will follow “the same political trajectory as the ethanol mandate and the ethanol blenders’ tax credit before it.” The mandate remains—albeit in a slightly weakened state—and the tax credit is gone: “ethanol no longer needed the blenders’ tax credit because it had the strong support of a mandate (an implicit subsidy) behind it.”
The PTC once enjoyed support from some in the utility industry that needed it to bolster wind power development to meet the mandates. Today, utilities have met their state mandates—or come close enough, the report points out: “their state utility commissioners will not allow them to build more.” It is important to realize that the commissioners are appointed or elected to protect the ratepayers and insure that the rates charged by the utilities are fair and as low as possible. Because of the increased cost of wind energy over conventional sources, commissioners won’t allow any more than is necessary to meet the mandates passed by the legislatures.
The abundance of natural gas and subsequent low price has also hurt wind energy’s predicted price parity. South Dakota’s Governor Dennis Daugaard (R), in Bloomberg, said: “If gas prices weren’t so cheap, then wind might be able to compete on its own.” David Crane, chief executive officer of NRG Energy Inc.—which builds both gas and renewable power plants—agrees: “Cheap gas has definitely made it harder to compete.” With the subsidy, companies were able to propose wind projects “below the price of gas.” Without the PTC, Stephen Munro, an analyst at New Energy Finance, confirms: “we don’t expect wind to be at cost parity with gas.”
The changing conditions combined with “wide agreement that the majority of extenders are special interest handouts, the pet political projects of a few influential members of Congress,” mean that “the wind PTC is not a sure bet for extension.” Bloomberg declares: “Wind power in the U.S. is on a respirator.” Mike Krancer, who previously served as secretary of the Pennsylvania Department of Environmental Protection, in an article in Roll Call, states: “Washington’s usual handout to keep the turbines spinning may be harder to win this time around.”
Despite the claim of “Loud support for the PTC” from North American Windpower (NAW), the report predicts “political resistance.” NAW points to letters from 144 members of Congress urging colleagues to “act quickly to revive the incentives.” Twenty-six Senate members signed the letter to Senate Finance Committee Chairman Ron Wyden (D-OR) and 118 signed a similar letter to Speaker John Boehner (R-OH). However, of the 118 House members, only six were Republicans—which, even if the PTC extension makes it out of the Senate, points to the difficulty of getting it extended in the Republican-controlled House.
Bloomberg cites AWEA as saying: “the Republican-led House of Representatives may not support efforts to extend the tax credits before the November election.” This supports the view stated in the report. House Ways & Means Committee Chairman David Camp (R-MI) held his first hearing on tax extenders on April 8. He only wants two of the 55 tax breaks continued: small business depreciation and the R & D tax credit. The report states: “Camp says that he will probably hold hearings on which extenders should be permanent through the spring and into the summer. He hasn’t said when he would do an extenders proposal himself, but our guess is that he will wait until after the fall elections. …We think the PTC is most endangered if Republicans win a Senate Majority in the fall.”
So, even if the PTC survives the current Senate’s floor debate (Senator Pat Toomey [R-PA] offered an amendment that would have entirely done away with the PTC), it is only the “first step in a long journey” and, according to David Burton, a partner at law firm Akin Gump Hauer and Feld, is “unlikely on its own to create enough confidence to spur investment in the development of new projects.” Plus, the House will likely hold up its resurrection.
Not to mention the growing opposition to wind energy due to the slaughter of birds and bats—including the protected bald and golden eagles. Or, growing fears about health impacts, maintenance costs and abandoned turbines.
All of these factors have likely led Jeff Imelt, chief executive officer of General Electric Co.—the biggest U.S. turbine supplier—to recently state: “We’re planning for a world that’s unsubsidized. Renewables have to find a way to get to the grid unsubsidized.”
Perhaps this time, the PTC is really dead, leaving smaller manufacturers desperately seeking subsidies.