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Thursday, March 5, 2015
- The U.S. wind industry looks set to enter a period of uncertainty, with an important government subsidy expiring at the end of the month and no clear plan for lawmakers to work towards an extension.
Because of the way the subsidy, known as the wind production tax credit (PTC), was extended in January this year, the industry has an extra cushion of time before the effects of the expiration would be felt directly. While this has muted some of the urgency around the issue, trade groups say inaction by Congress will become increasingly problematic during the coming year and are urging lawmakers to put in place policies that will offer longer-term stability.
“The change made in 2013 allows projects that start construction this year to qualify for the PTC … and will allow companies to continue to build projects past 2013,” Rob Gramlich, senior vice-president of public policy at the American Wind Energy Association (AWEA), the country’s largest such trade group, told IPS. “Meanwhile, our industry still faces uncertainty in the medium and long term, and needs Congress to address that next year.”
Since the PTC’s creation in 1992, Congress has often extended it only at – or even after – the last minute. Indeed, the reason for January’s tweaks to the current extension’s timeframe was due to the very late agreement, with proponents worried otherwise that no new wind projects would get built given that such a project typically takes upwards of two years.
Yet currently there are two obstacles to a typical extension for the PTC. First, in the current climate of fiscal austerity, federal government spending generally needs to be offset by savings elsewhere, thus requiring time-consuming haggling.
Second, the Congressional committee that would oversee energy credit “extenders” has announced plans to try to negotiate a complete overhaul of the U.S. tax system. While this would be lauded, it will be a dauntingly complex undertaking with no guarantee of success.
That leaves the PTC, and the broader wind industry’s health in the United States, hanging in the balance.
“We continue to see evidence that the Production Tax Credit is an effective tool that is working,” AWEA’s Gramlich says. “The legislative vehicle [for extension] could be tax reform, an extenders package, or something else, but ultimately our industry will begin to feel the impacts of uncertainty in 2014.”
The PTC, which offers a tax subsidy worth 2.2 cents per kilowatt-hour of wind energy produced for the first decade of a project’s lifetime, has been credited with substantially strengthening the role of wind energy in the United States. This has also resulted in a critical lowering in the price of production, which has come down by around 40 percent over the past four years.
The industry set records in 2012, seeing some 25 billion dollars’ worth of investment and an increase of more than 13,100 megawatts nationally. Combined with a somewhat slower year for the global wind energy leader, China, this put the United States essentially tied for the top spot internationally.
Yet the ongoing importance of the PTC – and the overall tenuousness of the domestic wind market – can be gauged by what happened next. Even though Congress only missed its deadline by a day or two in extending the PTC in January, it took much of the subsequent year for the industry to recover from the uncertainty this created for investors and utilities.
During the first six months of the year, AWEA reports just one wind turbine was constructed in the United States. Since then manufacturing and installations has again picked up as the impact of the new PTC assurances has been felt, and the extension’s tweaked timeframe means that this renewed momentum will last into next year.
Beyond that, however, the policy future is notably unclear. According to a new long-term forecast released Monday by the U.S. Energy Information Administration (EIA), U.S. wind energy production will increase through 2015 but then see no major rise for almost two decades.
Such an analysis appears to capture the increased production capacity from the current PTC extension, but then offer a bleak assessment of what would happen if the credit were not extended any further. (EIA estimates are based only on current legislation.)
In fact, despite ongoing, polarised debate here over taxpayer assistance in nurturing nascent alternative energy markets, there remains surprisingly bipartisan support for the PTC. To a great extent, this is because many parts of the United States best suited to wind energy generation are in Republican strongholds, thus offering enticing local boosts in jobs creation and investment.
Last month, a bipartisan group of 11 state governors wrote a letter to Congressional leaders, warning that some 5,000 people lost their jobs last year due to anticipation over whether lawmakers would extend the PTC.
“Congressionally sanctioned uncertainty has hit the nation’s wind industry incredibly hard,” the letter warns.
“We respectfully urge you not to repeat the legislative brinksmanship of 2012 and to adopt a responsible multi-year extension of the production tax credit … The nation’s wind industry developers do not need this tax credit forever, but they do need policy certainty in the near term to bring their costs to a fully competitive level.”
End all subsidies?
Indeed, many proponents of a longer-term extension of the PTC are not actually urging indefinite support for the industry, but rather any policy that can allow for long-term strategising.
“The short-term expirations of the PTC have clearly wreaked havoc on the industry, creating a boom-bust cycle,” Steve Clemmer, director of energy research at the Union of Concerned Scientists, an advocacy group, told IPS. “The industry definitely needs a long-term policy, whether that’s a long-term extension or phase-down or a transition to another policy.”
Clemmer notes that part of the reason the PTC and similar credits for renewable energy production were adopted in the first place was to level the playing field with other, more established, energy technologies. While that dynamic remains largely unchanged today, the new discussion on tax policy offers a potent opportunity.
“Fossil fuels and nuclear power have been getting much larger subsidies for much longer than renewables receive, around 10 times as much on an annual basis if you look back 50 years or so,” Clemmer says.
“To eliminate the subsidy for wind without addressing the others would be unfair. But that also gets you back to the current discussion over comprehensive tax reform – perhaps we can simply phase out all of these subsides at the same time?”