Chu opens the door to phaseout of wind incentive

Source: Nick Juliano • E&E • Posted: Thursday, March 15, 2012

A day after the Senate declined to extend an array of federal incentives for renewable energy development, the Obama administration’s top energy official signaled an openness to eventually eliminating support for some wind energy because it is nearly competitive with conventional generation.

Energy Secretary Steven Chu said he and other administration officials, including White House energy adviser Heather Zichal, met Tuesday with representatives of the wind industry and other energy sectors on the topic of tax incentives and other subsidies. He said that during the meeting a wind industry official, whom he did not name, expressed a willingness to eventually phase out the production tax credit, even though the industry is aggressively lobbying to have that credit extended beyond its scheduled December expiration.

“The representative of the wind industry said they just don’t want to see a cliff, they just don’t want to see it ended suddenly,” Chu told reporters after testifying on Capitol Hill yesterday. “So over a period of time, especially as — and no dates were discussed — but over a period of time, a road map of phasing out, you see where the prices are going and you can see” how to eliminate the credit.

While there is not a formal phaseout plan being drawn up by the administration, Chu said the idea that wind would eventually be able to thrive without government support was in line with the administration’s broader approach to federal energy incentives, which have featured prominent calls to eliminate certain tax rebates for the oil and gas sector. He pointed as another example to the volumetric ethanol excise tax credit, or VEETC, which expired in December with little resistance from the ethanol industry.

Just as eventually VEETC and other things were eventually phased out, I think it’s something the wind industry sees: As the technology gets better, there’s no need to be subsidizing a competitive industry once it’s competitive,” Chu said. “And I think that’s what the president’s point is — the oil industry is very competitive, they’re making lots of money on their own, so you need not subsidize them.”

The head of the wind industry’s main lobbying group said that openness to an eventual phaseout of the production tax credit, or PTC, does not change the need for an extension at least beyond this year.

“The industry needs an immediate extension of the Production Tax Credit in order to save U.S. wind manufacturing jobs,” said Denise Bode, CEO of the American Wind Energy Association, in a statement to E&E Daily. “AWEA is committed to looking at a variety of options in the context of comprehensive tax reform. We’ve been clear that we don’t need it forever. However, 37,000 jobs would be lost within a year if the PTC is not extended.”


Chu spoke to reporters after facing questions yesterday from the Senate Energy and Water Development Appropriations Subcommittee on his department’s fiscal 2013 budget request, which would raise DOE’s budget by 3.2 percent to $27.2 billion. In its request, DOE called on Congress to extend the PTC for wind beyond its scheduled expiration at the end of this year and to reinstate the so-called 1603 program, which allows wind, solar and geothermal developers to receive a grant from the Treasury Department in lieu of a 30 percent investment tax credit. The 1603 program expired at the end of last year.


Sen. Lamar Alexander (R-Tenn.), a harsh critic of wind energy subsidies especially, questioned the need for those extensions in a tough budget environment, suggesting the money would be better spent researching new energy technologies. Alexander cited figures from the Treasury Department that the PTC and 1603 programs cost about $14 billion between 2009 and 2013, and he said he would like to see DOE’s energy research budget double from $5 billion to $10 billion for fiscal 2013.


“You’ve testified that wind is a mature technology. If it is, and if we’re in a time of priorities and if we need to double our funding for energy research, why wouldn’t it be a good idea to phase out these long-term subsidies?” said Alexander, the top Republican on the Energy and Water Development Subcommittee. “The production tax credit started as a temporary tax credit in 1992. Why wouldn’t we phase those out and use it for research, for your hubs, for solar, for carbon recapture, for offshore wind — but not to subsidize a mature technology?”


Chu told Alexander that “there’s not much disagreement” within the wind industry to that proposal, noting the gains the industry has made in bringing costs down in recent years.


“The good news is their costs are becoming comparable to any new form of energy — they’re still more expensive than new natural gas, but they’re within striking distance,” Chu said during the hearing. “And so to actually begin to think of a way to phase this out is something I think even the representatives of the wind industry acknowledge.”


Chu’s testimony came a day after the Senate rejected a transportation bill amendment from Sen. Debbie Stabenow (D-Mich.) that would have extended the PTC, 1603 and an array of other renewable energy incentives. The amendment garnered 49 votes, short of the 60 it needed to clear procedural hurdles to become part of the underlying transportation bill, which the Senate resoundingly passed yesterday.


Gas prices again a hot topic


As he had in most of his recent appearances on Capitol Hill, Chu again faced questions on the administration’s approach to rising gas prices when he appeared before the Appropriations subcommittee.


Chu reiterated that the administration is “looking at every tool we have to bring down those prices,” although he acknowledged that over the “short and mid-term they’re rather limited.”


Over the long term, Chu pointed to ongoing public- and private-sector efforts to get long-haul trucks to run on natural gas, to reduce the costs of compressed natural gas in order to give consumers a “different kind of flex fuel” vehicle that would run on natural gas or conventional gasoline, and to reduce battery costs so electric cars become cost-competitive with those running on internal-combustion engines.


Chu also faced questions from several Democrats and Republicans on the committee about the administration’s approach to nuclear energy, especially the need to find a disposal site for spent nuclear fuel. Questioned by Sen. Lindsey Graham (R-S.C.), Chu acknowledged that the administration would be unlikely to certify Yucca Mountain, Nev., as a disposal site, and he said DOE would look to the advice of a recent report from the Blue Ribbon Commission that President Obama assembled on the issue.