Wind-Sector Cuts Tied to Tax-Credit Clouds

Source: By KEITH JOHNSON, Wall Street Journal • Posted: Thursday, September 20, 2012

WASHINGTON—New layoffs at Siemens AG’s DE +0.30% wind-power factories in the U.S. mark the latest retrenchment in the wind industry caused in part by the looming expiration of a federal tax credit.

Siemens, a global leader in wind-turbine manufacturing, said Tuesday it would eliminate more than 600 positions, or about 37% of its U.S. wind-turbine-manufacturing jobs. The cuts include 407 jobs at its Fort Madison, Iowa, blade factory and 146 at a factory in Hutchinson, Kan., that makes nacelles, or housing, for the turbines’ generators and gears. Additionally, Siemens said 330 temporary positions added to help with busy times earlier won’t be renewed.

Current U.S. law gives wind-power producers a tax credit of 2.2 cents per kilowatt-hour, a subsidy that keeps wind energy competitive with other methods of generating electricity. The tax credit is set to expire at the end of the year. A bipartisan group of lawmakers in Congress is pushing to extend the credit, while many Republicans say the cost—an estimated $12 billion through 2022—is too high. In the past, the credit has been renewed for one- or two-year periods.

Siemens doesn’t receive the production-tax credit, but its expiration could hurt orders because customers are expected to develop fewer wind farms if the credit ends. In addition to the tax-credit issue, Siemens attributed the layoffs to the low price of natural gas, now the top fuel for American electricity generation, and sluggish electricity demand. Together those factors “are casting a shadow on the short-term future of the entire U.S. wind power industry,” Siemens said.

Navigant Consulting, of Chicago, has estimated the end of the credit could ultimately cost the industry 37,000 jobs throughout the supply chain, out of about 75,000 total jobs currently.

Denmark’s Vestas Wind Systems A/S, VWS.KO +0.25% the world’s largest wind-turbine maker, said last month it would accelerate planned job cuts globally, including the likely loss of almost 500 jobs in the U.S., owing to the slowdown in orders for 2013.

“It’s a great loss to America, in what has been one of our leading sources of new manufacturing jobs. But Congress can make it stop,” said Denise Bode, CEO of the American Wind Energy Association, in a statement.

Congress isn’t expected to act on the tax credit until after the November elections, and it is unclear if the House and Senate will be able to reach a deal during the lame-duck session

President Barack Obama has made repeated campaign trips to Iowa, one of the states that has most benefitted from wind-power manufacturing, and supports renewing the tax credit, as do many congressional Republicans from the Midwest. Republican presidential nominee Mitt Romney opposes extending the credit.

An additional challenge for some U.S. manufacturers is foreign competition from low-cost producers. Katana Summit LLC, a Nebraska-based maker of wind-turbine towers, said last week orders were drying up and it would shut down operations—shedding almost 300 jobs—unless it found a buyer.

Katana also blamed the tax-credit expiry for the order slowdown. It is a plaintiff in a trade case brought by a group of tower makers with the U.S. Commerce Department alleging that Chinese and Vietnamese tower makers are dumping cheap towers in the U.S. market. The Commerce Department agreed earlier this year and said it planned to impose tariffs on the foreign towers. It could finalize those tariffs by year’s end.