Amid the fiscal cliff drama on Capitol Hill, there's a behind-the-scenes push to extend a lucrative tax credit that has helped propel the recent boom in the U.S. wind industry.
A bipartisan group of lawmakers aims to attach a one-year extension of the credit, slated to expire at the end of December, to a broad budget deal that would avert the fiscal cliff's tax increases and spending cuts. But what if Congress and President Obama can't reach an overall deal?
"Wind would take a hit," says Michael Bernier, who analyzes renewable energy tax credits for Ernst & Young, a global accounting firm. He says the tax credit has helped the U.S. wind industry expand quickly and slash prices. Projected to add a record 13 megawatts of power this year, the industry has accounted for one-third of new U.S. power generation in the last five years.
Without the credit, Bernier says, the industry will contract, adding that the extent will depend partly on competing prices for natural gas. Government data show the 20-year-old production tax credit, which cuts the cost of a wind project by nearly a third, has expired three times before -- in 2000, 2002 and 2004. Wind production plummeted the year following each lapse by 93%, 73% and 77%, respectively.
"It (another expiration) would be devastating. Half the jobs in the industry could be lost within a year," says Robert Gramlich of the American Wind Energy Industry Association, an industry group. He points to a report by Navigant Consulting that estimates an expiration would kill 37,000 jobs by the end of March 2013, whereas a renewal could add up to 100,000 jobs in four years.
The uncertainty over the wind credit has already caused thousands of wind workers to lose their jobs this year, Gramlich says, citing recent layoffs by wind turbine manufacturers Siemens Wind Power and Katana Summit.
"A lot of people are nervous there won't be an extension. We're seeing people diversify into solar," Bernier says. Unlike the 2.2-cents-a kilowatt-hour wind credit, which has been subject to one-year, last-minute renewals, the solar industry enjoys an investor tax credit of 30% through 2016.
Gramlich says the wind industry should receive consistent tax breaks, as do other energy sectors, including the $4 billion or so in annual subsidies received by the oil and gas industries since the 1960s.
Critics say it's time to end the wind tax credit, estimated to cost taxpayers $1.3 billion this year alone. They say the wind industry, which now provides about 3% of total U.S. electricity, should be mature enough to compete without training wheels.
"This is an example of a program that's run its course," says Thomas Pyle, president of the American Energy Alliance, a group funded partly by oil interests that's lobbying against the tax credit. He says the wind industry is using its subsidy to underbid other energy sectors and manipulate the market.
Richard Caperton, an energy expert at the liberal-leaning Center for American Progress, says the wind credit may be forcing lower energy prices (and corporate profits) but not to an extent that harms U.S. energy reliability. He says the nuclear and hydropower industries also use subsidies to bid for contracts at below-zero or negative pricing.
If there's a deal on the fiscal cliff, many observers expect a one-year extension will pass because of its bipartisan support. "Wind blows in the rural areas where there are a lot of Republicans," Pyle says. Advocates for the credit include GOP Sen. Chuck Grassley and Rep. Steve King, both of Iowa, which received about 20% of its power last year from wind.
Douglas Egan, who develops wind and natural gas projects as co-founder of Competitive Power Ventures, is less optimistic. He says the typical one-year extension is "almost worthless," because it requires new wind projects be completed within a year in order to benefit. He says it often takes longer than that.
"Sooner or later, we have to stand on our own feet," Egan says, adding that the wind industry could manage a gradual step-down in subsidies.
Gramlich, the industry advocate, says the tax credit -- if extended -- might have more helpful language this time around. By a 19-5 vote in August, the Senate Finance Committee approved an extension that requires wind projects be started -- but not necessarily completed -- by the end of 2013 to qualify for the credit.
He says the fiscal cliff adds drama to the 2012 debate, but extensions often come down to the wire. He says prior renewals have come, on average, seven days before expiration, adding: "It's very common to be in this exact position."
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