News Column

Wind-power Subsidies Are Under Scrutiny

Dec. 26, 2012

Mike Dennison

Wind Power

As Congress struggles to avert the year-end "fiscal cliff" of tax-and-budget policy, there's one expiring tax law that isn't getting much press: The federal tax credit that subsidizes wind-power production.

Wind-power advocates and leading politicians in the West say this credit, which expires in a week, should be extended to preserve thousands of jobs and a growing, clean-energy industry.

But others say it's time to let this subsidy die, for it's skewing electricity markets, hurting other power producers, and not delivering on its promise of jobs.

"They go build a wind farm, they're there for three-to-six months," says Bob Winger, a union boilermaker from Billings and vocal critic of wind-power subsidies. "Coal mines and coal-fired power plants are jobs day-in, day-out. ... Who are all of these people (in wind) that they say are employed?"

According to figures compiled by the state and the wind-power industry, wind projects in Montana have created about 1,300 construction jobs in the past seven years -- but only 86 permanent jobs.

Montana coal mines, whose product is burned to produce power, employ about 1,100 people, and coal-fired power plants here employ at least another 400.

The wind-power production tax credit pays project owners $22 for every megawatt hour (mwh) of electricity they produce.

In the Pacific Northwest right now, spot-market prices for electricity are averaging $25 per mwh. So, while sellers of other types of power get $25 per mwh, a wind-power plant will get $47 per mwh, with the subsidy.

On rare occasions this year, during "off-peak" hours of low consumption, wholesale electricity prices have actually fallen below zero on the spot market, with wind-power producers paying suppliers to buy their power so projects can continue to collect the subsidy.

They might pay the "buyer" $5 per mwh to accept the power, but they still make $17 per mwh because of the subsidy.

Wind-power advocates say this "negative pricing" is a rarity, and that the subsidy is justified because it levels the playing field for wind, in the face of long-standing tax breaks and favorable public policy for the production of oil, gas and coal.

"Everybody gets energy subsidies," says Van Jamison, a vice president of Gaelectric, an Irish firm developing wind farms in central Montana. "We have a long history of government choosing winners and losers over a long period of time."

Jamison and others note that the "fracking" techniques and horizontal drilling that have led to a boom in oil and natural gas production are beneficiaries of generous tax breaks.

Wind-industry officials say the $22-per-mwh production-tax credit is vital for the industry, and without it, scores of projects will founder and thousands of jobs will be lost.

The wind-power industry says it has invested nearly $1.4 billion in Montana the past decade. It acknowledges that much of that money buys wind turbine and tower components, some of which are manufactured overseas.

In addition to spending on turbines and labor, wind projects also make land-lease payments to landowners and pay property taxes. Together, those total about $7 million a year in Montana, according to the American Wind Energy Association.

Coal mines in Montana paid about $60 million in severance taxes, gross proceeds taxes and property taxes last year, and another $90 million in royalties to government and private parties. Coal-fired power plants also paid millions of dollars in property taxes.

Winger says money spent on the wind production tax credit is artificially depressing energy prices, thus making it difficult for reliable, relatively cheap coal-fired power to compete. That money would be better spent on research to make coal a cleaner-burning fuel, he says.

"The wind tax credit is enough to skew the market to where it's putting the nail in the coffin (of coal)," he says.

Bob King, the president of Westmoreland Coal, which owns three coal mines in Montana, notes that the wind-power subsidy was first created 20 years ago, sold as credit to help a fledgling industry get off the ground.

"The question is, how many more 20 years is it going to take for wind energy to become competitive?" he asks. "Right now, it's not even close. ... We believe it provides competition that's not a level playing field."

Jeff Fox, Montana policy manager for the Renewable Northwest Project, says tax incentives for fossil-fuel industries haven't gone away, and so it only makes sense to continue wind energy's subsidy.

He also notes that wind supporters have offered to phase out a renewed tax credit over the next five years -- if subsidies for competing power-generators are phased down as well.

Wind power is a relatively low-cost, low-risk power source that is in demand in the Northwest, so its production should be encouraged in Montana, Fox says.

While the coal industry and coal-fired plant owners may grumble about the wind tax credit, they've not been waging all-out political war against its extension, acknowledging the benefits of a mix of different types of power sources for the country.

King says it's clear that U.S. policy is discouraging coal production and dampening domestic demand for coal, but that the industry expects to be around for many years, and also is looking at future export markets.

"I think the tail on that is pretty long," he says. "There is still a lot of business to be done over the next 50 years, inside that tail."

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Source: (c) 2012 The Montana Standard (Butte, Mont.)