Fears of losing tax credit take the sales out of the wind turbine business

Source: Nathanial Gronewold, E&E reporter • Posted: Wednesday, December 12, 2012

HOUSTON — Wind energy enthusiasts in Texas are beginning to think the time has come to look beyond federal support for their industry, turning their attention instead to Austin and other regional state capitals.

With the survival of the federal production tax credit (PTC) hanging in the balance, new investment in towers and turbines in the nation’s largest wind energy state is coming to a screeching halt. Ongoing projects are scrambling to be completed by the end of this month to make them eligible to receive the tax credits for 2012, but new projects aren’t happening, according to the offices of the Texas Wind Energy Clearinghouse in Sweetwater.

As a result, the rate of expanding installed capacity has slowed considerably. But a massive investment in new transmission lines across Texas is continuing, and plans remain for a corridor to possibly export renewable energy from Texas to neighboring states in the Southeast.

And experts still report good support for the wind industry among many political leaders in Texas, Oklahoma and elsewhere. Weighing the good news with the bad, industry insiders last week discussed their options at a regional meeting of the American Wind Energy Association held here.

The Western Governors’ Association on Friday asked Congress to pass legislation extending the PTC before year’s end, noting that the tax credit in 2011 alone had helped generate more than 30,000 jobs in Western states. “Part of our diverse energy portfolio is at risk with the expiration of the renewable energy production tax credit,” the letter states.

With their membership strongly skewed toward the GOP, the Western governors could stir some lawmakers, especially in the House of Representatives, where opposition to the wind PTC runs strong. As such, the governors stopped short of an unqualified endorsement of the tax credit, saying a “short-term extension should be coupled with a broader conversation about revisiting all energy-related tax credits.”

Even so, the American Wind Energy Association issued a statement hailing the governors’ letter, saying the group’s “ringing endorsement of the PTC shows how the power of wind can unleash the power of bipartisanship.”

For Texas wind developers, the answer may lie in revisiting the state’s renewable portfolio standard (RPS), or the volume of the state’s power that much be generated by renewables. It’s been met, leaving no incentive left for the wind industry here to grow by.

“One of the things that our state did that could have been done differently is that we set the RPS at a specific number instead of saying we want a certain percentage,” Jeffrey Clark, executive director of the Wind Coalition, said in an interview. “If there was a percentage, then that amount would grow over time as the overall load grew.”

He added, “I think it would make sense at some point to go back and revisit that.”

Majority opinion among wind industry players seems to hold that the fight for renewing the PTC should continue in Washington. That remains AWEA and other groups’ top priority.

Looking for more help from the states

But officials are also saying that, moving forward, it may be time for wind developers to hinge their hopes mainly on state incentive programs. Meanwhile, wind companies should work hard to improve the economics of wind, eventually ushering in the day when incentives are no longer necessary.

“I think this industry has to identify alternatives to the PTC,” Gabriel Alonso, CEO of EDP Renewables North America, told his industry peers during the discussion.

Alonso said his firm’s plans for next year involve seeking opportunities in the wind space “outside the U.S.” and a dive into solar power development. He saw little prospect for major new development of wind energy should the PTC end, unless the technology manufacturers manage to bring prices of wind equipment down dramatically in a very short time.

Texas wind developers will have a chance to lobby for more support from lawmakers in Austin as the state’s Legislature returns next year. Efforts will most likely focus on enlisting support from lawmakers in wind-heavy counties in west Texas to defend, and maybe even expand, the state’s RPS.

Even though it’s the largest source of greenhouse gas emissions among all 50 states, Texas has seen the largest wind boom thanks to its decade-old RPS coupled with the federal PTC. From almost no installations, the state now boasts more than 10,000 megawatts of wind power capacity, far above any other state, and Texas leads the nation in wind equipment manufacturing and employment.

Wind is also winning accolades for saving Texas from likely electricity shortages during demand highs. Electricity output from the state’s wind turbines has surpassed expectations; according to the Electric Reliability Council of Texas (ERCOT), wind supplied 26 percent of Texas’ electricity at one point last month, a record (ClimateWire, Nov. 19).

Better prospects in Brazil?

Highlighting these points may help attract more support for the industry next year, partially offsetting the loss of the PTC should that occur, conference participants said.

Clark argued that a lobbying strategy focusing on jobs and manufacturing will work much better than appeals to climate change concerns and environmentalism. He believes Texas could position itself as a center of wind technology exports to parts of Latin America, especially Brazil, where wind development is expanding.

“We’re going to miss incredible manufacturing and exporting opportunities,” he said.

Like solar energy boosters, wind energy representatives are also hoping to get a seat at the table when lawmakers and regulators discuss what to do about Texas’ looming power shortages.

An electricity market deregulation drive has resulted in most Texans paying some of the nation’s highest electricity prices, but energy developers say the prices are not enough to entice them to build more generation. ERCOT fears it may have to introduce rolling blackouts and brownouts in parts of the state at peak summer demand times in the near future.

John Dumas, director of wholesale market operations at ERCOT, said talks of reforms to the system to address creeping capacity shortfalls should “get the market design right so that resources can come in and compete,” including wind power.

Clark agreed. He said plans for discussing wind’s future in Texas should be held in a context that looks at all power sources, and the various subsidies and government benefits that they all receive.

“The PTC is very important right now, but if it goes away, yeah, I’m hopeful that there will be state programs that can help,” he said.

Nevertheless, “the program that we see as an incentive in Texas is not a wind energy program, it’s a capital investment program,” he explained. “There is no program in the state of Texas that is specific for wind, so we’re just trying to make sure that we have the same access to the same programs that everyone who’s investing a major amount of money in the state can get.”