Tax Policy Blowing in the Wind

Source: MATTHEW L. WALD • New York Times • Posted: Tuesday, December 13, 2011

If you want something from Congress, there are probably only about four shopping days left until Christmas, because most members of the House and Senate seem likely to go home on Friday. One big item on the green list is an extension of the production tax credit for wind energy, and the industry’s trade association, the American Wind Energy Association, released a dire study on Monday about what will happen without it.

A wind turbine near Paxton, Ill.A wind turbine near Paxton, Ill.

The association commissioned a studyfrom Navigant Consulting, which found that next year there will be 78,000 jobs supported by wind, but that this would fall to 41,000 in 2013 without an extension of the tax credit, which is 2.2 cents per kilowatt-hour.
(That credit is rather large, considering that the average sale price of a kilowatt-hour is about 11 cents.)

Extending the tax credit to 2016 would create another 17,000 jobs, the consulting firm predicted.

Wind is in a different boat from solar, which has its own frantic lobbying effort now under way to get Congress to act before the lawmakers go home. As I wrote last week, the solar industry has a credit that is good until 2016 but is seeking wants an extension of a separate program that converts the credit to a cash grant.

The wind industry has given up on getting that provision extended for itself and is focused on its underlying credit, which expires at the end of next year.

But in practice, the credit has already expired, according to the industry. The reason is that to get the credit, a company has to have the wind farm in service by Dec. 31, 2012, and it is probably too late now to break ground on a new project and be sure of having it in service by then.

“The planning cycle for our industry is in excess of a year,’’ said Kevin Hazel, vice president of supply chain management for Siemens Wind Power, in a conference call with reporters. “if the production tax credit isn’t extended soon, the uncertainty for our customers will tend to have them hold back.’’

The credit has expired before, but at this point, according to the industry, wind has a substantial American industrial base, so more is at risk.

At companies that supply components for wind farms, executives say they have fat order books. But some of those orders are likely to be canceled if the tax credit is not extended, they say.

Wind installations will continue to grow for as long as states maintain standards for including renewables in their energy portfolios.” But some of those standards could be trimmed, especially if there is a large after-tax price gap between wind and conventional energy. The industry has something else in mind; a technology that would be cost-effective without the credit, based on economies of scale.

But building momentum towards a full-size, independent industry won’t be helped by a start-and-stop tax credit, the industry contends.

The effort to extend the production tax credit has a broad variety of backers, including some that are not traditionally thought of as green, like Midwestern steel manufacturers. But with Congress deadlocked on bigger issues like the payroll tax, this one seems likely to slip into early 2012 at least.