AWEA’s Kelley says industry continuing to face tax incentive uncertainty

Source: Monica Trauzzi, E&E • Posted: Thursday, April 25, 2013

With uncertainty over federal tax incentives plaguing the wind energy industry through most of 2012, how did the industry fare last year and what are its short-term prospects for growth? During today’s OnPoint, Peter Kelley, vice president for public affairs at the American Wind Energy Association, discusses the future of the production tax credit for wind energy and the impact of the uncertainty he says his industry continues to face. He also addresses concerns in Congress that the wind industry is receiving too much federal assistance through duplication of incentives.

Click here to watch today’s OnPoint.Monica Trauzzi: Hello and welcome to OnPoint. I’m Monica Trauzzi. Joining me today is Peter Kelley, vice president for public affairs at the American Wind Energy Association. Peter, thanks for coming on the show.Peter Kelley: Thank you.

Monica Trauzzi: Peter, after a tumultuous end of 2012 that was plagued by uncertainty on tax incentives for your industry, how did you guys actually do last year, and what’s the prospect for 2013?

Peter Kelley: Well, wind energy is now a mainstream source of energy, and we proved that last year by being the No. 1 source of new electric generating capacity in America. Over 40 percent of our new generation came from wind. That’s way ahead of natural gas and coal and all the other sources. So it was our strongest year ever. We’ve experienced remarkable growth: 28 percent more wind energy at the end of the year than we had when we started in America. So that’s been a huge boon to the industry. And yet we’re still confronted with this uncertain policy landscape that has the companies trying to figure out what the rules are going to be in the future.

Monica Trauzzi: There were some investments that were lost as a result of the uncertainty. How long do you think it’s going to take your industry to recover those investments?

Peter Kelley: Well, every month we see utilities putting out more requests for proposals. We see developers bidding on these new wind farms that are going to be built. That will trigger the manufacturing orders, and that will start the factory lines up to full capacity. But it may take some time to really realize the potential of wind. It’s going to take until 2030 before we’re at 20 percent of the grid. So far we’re ahead of schedule to get there. We believe the industry will continue to recover and will be busy building more wind farms this year with the existing policy.

Monica Trauzzi: So to that end, what’s your strategy moving forward on the policy, on the product tax credit? How are you going to be lobbying Congress on that?

Peter Kelley: Well, right now there’s no legislative vehicle in sight for people who need energy legislation, so we are still confronted with this unpredictable business environment. But there’s not much we can do about that until Congress returns to the questions of tax reform, when all the energy industries would be at the table. Or maybe an energy bill. So far we’re not seeing the bipartisan support for that kind of thing, and so we’re just using the existing policy to build as many wind farms as we can, and we get to start them by the end of the year. That’s the important thing about this year’s policy.

Monica Trauzzi: Has the U.S. wind industry broken through cost barriers at this point?

Peter Kelley: Well, over time we’ve reduced the cost of wind energy tremendously. It’s come down 90 percent since 1990. And we believe that with a couple of more product development cycles of two to three years, we can be even more cost competitive, because advances are still being made. But this is a mature technology, it’s now one of the lowest cost forms of energy in America, and with such things as taller turbines they reach higher wind speeds. We’re opening up new areas to development. And very, very competitive contracts are now being signed for wind power this year.

Monica Trauzzi: There are concerns though in Congress that wind energy is receiving too much federal assistance, that there’s duplication of incentives. Do you dispute at all the GAO’s findings that you may be receiving too much federal money?

Peter Kelley: Well, I think the GAO said it best themselves. They said virtually all the value is in a single policy, the production task credit, and an alternative, you can take either that or an investment tax credit. And so, no, I think all forms of energy have always been heavily incentivized, heavily regulated in this country for up to 100 years. And that’s because we want predictable, low-cost energy in America. It benefits our economy, it saves consumers money, and that’s why energy is frankly so affordable in America. It’s because of these policies and incentives. So why should wind energy be the only form of energy to lose its incentive this year? I think basically we should look at them all. And meanwhile, our energy policy in this country really is in the tax code, and it makes sense to continue what’s working.

Monica Trauzzi: Do you need all the incentives that you’re currently getting? Without them will you not be able to continue to grow?

Peter Kelley: Well, as I said, really all the value is in the single incentive, the production tax credit, or the alternative investment tax credit. And in order to create all this infrastructure and create a new form of low-cost energy for America it’s important to have some incentive to drive the $25 billion in private investment last year. So to put that in context, that’s more than we spend on guns, it’s more than we spend on boats, as a country, and so this is rapidly creating a brand-new form of energy in America. But it doesn’t come from nowhere, and all that private investment needs to have a signal to enter the market.

Monica Trauzzi: How much competition continues to exist between your industry and the oil and gas sector?

Peter Kelley: Well, the various forms of energy work together. Many people talk about an “all the above” energy strategy. We want a diverse portfolio in America. And so it’s appropriate to have many different forms of energy, and not to over-invest in one or the other. To prevent a future price shock, to prevent supply disruptions or regulatory risk you want to be diversified in your portfolio. So wind and gas, for instance, work well together, both in terms of availability and in insulating against any future price increases. And wind, unlike the other forms, will give you a 25-year contract. So you know exactly what it’s going to cost for the next 25 years. That’s why utilities like it, that’s why they’re buying so much of it, and that’s why it’s helping their consumers.

Monica Trauzzi: So we talked a little bit about tax policy. The big focus on the energy side right now in both the House and Senate really seems to be on nonrenewable stuff, Keystone natural gas. But transmission remains a key issue for the renewable guys. How do you think Congress may handle that? Do you think they have plans to tackle that?

Peter Kelley: Well, transmission bottlenecks are avoiding the low-cost energy reaching the market in some cases. We have parts of the country that have wind energy, they could be selling across state lines that need new transmission lines. But we’ve always had the need for more transmission in this country, and we’ve met it in the past when we brought on other forms of energy. So I think the progress is being made at FERC, defining how we’re going to share the costs of this equitably, and by private companies creating new more creative ways to move electricity over long distances, say with direct current. So I think the progress is being made. It’s not the case this is a huge challenge but rather something we need to chip away at and we’re making progress on.

Monica Trauzzi: If you had the opportunity to sit down with future Secretary Moniz of DOE, what would you tell him are the top-tier things that the wind industry needs?

Peter Kelley: Well, I think Department of Energy has made a contribution in the area of research and development, but has not so far sent the signal that this is actually a mature technology that’s working today. And so we would encourage them to look at supporting installation of as much wind energy as we can, as fast as we can, to meet the need for low-carbon and low-pollution energy, to create energy that will never run out, to insulate against price shocks in the future, to save water. Wind uses no fresh water in operation. So it’s a great solution in drought-prone states. There’s still technology out there that we can bring down the cost further by developing. Really the most important thing for the federal government is to send the signal that now it’s time to build this new form of energy as much as it can be.

Monica Trauzzi: All right, Peter, we will end it right there. Thank you for coming on the show.

Peter Kelley: Thank you.

Monica Trauzzi: And thanks for watching. We’ll see you back here tomorrow.