The future of wind energy in question

Deadline approaches for renewal of the wind energy Production Tax Credit

Image courtesy of the Energy Information Administration

Each year that the wind Production Tax Credit has been allowed to expire, the wind energy industry has seen major declines. This year, wind energy faces that possibility for a fourth time in the credit’s 20-year life span.

While proponents of the tax credit cite its effects on reducing carbon dioxide and creating jobs, those who would like to see the credit come to an end say that it is time for wind power to stand on its own and prove itself, rather than sucking money from an already overdrawn government bank account.

The tax credit was established as part of 1992’s Energy Policy Act, which updated a 1978 Investment Tax Credit that made awards based on investments in operating wind facilities, rather than on the kilowatt hours of power produced by those facilities.

The credit was allowed to expire on schedule in 1999, having shown little effect on the wind and biomass industries. Just a few months later, the Production Tax Credit was retroactively extended through 2001, a year that saw a record-setting 1,700 megawatts of wind power added nationwide. In both 2001 and 2003, the tax credit was allowed to expire, only to be retroactively extended in an energy policy bill and an omnibus package on tax credits that addressed the economic downturn following 2001.

In each case, the annual wind capacity installed for the year following the expiration dropped significant ly — by 93 percent in 2000, by 73 percent in 2002 and by 77 percent in 2004, according to the American Wind Energy Association. Since 2005, the annual wind capacity installed has grown, minus a brief lapse in 2010.

Now, it’s once again up for renewal, and the fear among those who support the renewal is that if the tax credit expires, 2013 will see the same kind of dramatic setback.

As it stands, existing wind energy projects receive a tax credit of approximately 2.2 cents for every kilowatt hour of energy that is produced, an increase adjusted for inflation from the 1.5 cent rate from 1992.

“With reductions in capital costs and increases in capacity factors, wind power technology has improved since the introduction of the [Investment Tax Credit] and [Production Tax Credit],” the U.S. Energy Information Administration said in a 2005 outlook on the Production Tax Credit. “It is likely that the installations spurred by those incentives allowed the industry to ‘learn by doing’ and thus contributed to improvement of the technology.”

In 2011, 2.9 percent of America’s energy needs were met by wind power production, but a report from the U.S. Department of Energy estimates that with some aggressive increases in installation, by 2030, 20 percent of the nation’s energy will come from wind.

In Colorado, 9.2 percent of energy needs were met with wind power in 2011, making the state the sixth-highest producer of wind-generated energy, according to the American Wind Energy Association.

A 2010 alteration to Colorado’s Renewable Portfolio Standard requires that 30 percent of the state’s energy needs be met through renewable sources by 2020. The American Wind Energy Association reports that installed wind power displaces 3.5 million tons of carbon dioxide each year in Colorado alone.

Jeanne Bassett, senior associate at Environment Colorado, says that recent events like Hurricane Sandy are warnings of what’s to come should renewable forms of energy take a hit, like the impending expiration of the Production Tax Credit.

“The universe is telling us wake up,” she says. “This is real, and it’s going to cost you a lot of money if it isn’t dealt with. Repairing damages from the hurricane is going to cost an incredible amount of money.”

In October, Vestas Wind Systems laid off approximately 500 workers at four Colorado plants. The company attributed the decision to reduce its manufacturing workforce by 18 percent to uncertainty about the extension of the Production Tax Credit. Its workforce, including jobs in manufacturing, sales, service and research and development across the U.S. and Canada, was cut by about 20 percent because turbine orders for 2013 were down, despite the fact that 2012 was the company’s busiest year, Vestas said in a press release.

Between 4,000 and 5,000 people in Colorado were employed in 2011 directly or indirectly by the wind power industry — information that is among the stats cited by wind energy advocates to argue for another exten sion for the Production Tax Credit.

“I’m very sympathetic to the argument that this creates jobs,” says U.S. Rep. Doug Lamborn (R-Colorado Springs), who opposes the extension. “A job is wonderful thing. However, if a job is dependent on a government subsidy and goes away when the subsidy goes away, then that doesn’t strike me as a very reliable job.”

Lamborn is the only Colorado congressperson who doesn’t favor a renewal of the tax credit.

“Renewable energy in and of itself can be a very positive thing,” he says. “What I’m concerned about is our growing national debt.”

According to an op-ed Lamborn wrote on the subject earlier this year, “over the past 20 years, the federal government has spent more than $20 billion on a tax credit for wind producers.”

Continuing to support the industry with government subsidies could be harmful to future development, he argues.

“I would love to see wind energy become commercially viable,” he says. “When you prop up something, you might be delaying the day that it becomes self-sufficient. I say, let’s put it on a level playing field and it will either come through or it will prove not commercially viable.”

Though those in favor of the extension agree that wind energy needs to become viable, they say that the subsidy is necessary to level the playing field with fossil fuels. Independent oil producers can deduct 70 percent of the costs of drilling and developing an oil and gas well or mine the first year, and the additional 30 percent over the following five years, as well as 15 percent of their gross revenue on their first 1,000 barrels a day as percentage depletion.

“If you look back at the money spent to build up the fossil fuel industry, it’s just as much, and they are still receiving subsidies,” Bassett says.

According to a research paper put out by DBL Investors, a venture capital firm created from the Bay Area Equity Fund from JP Morgan, the fossil fuel industry received an estimated $447 billion in government subsidies over the 90-year period between 1919 and 2009. That’s about $29.8 billion every 15 years.

In the 15 years between 1994 and 2009, the renewable energy industry received an estimated $6 billion in subsidies.