Potential loss of tax credit becalms wind industry

The wind power industry, which has been one of the nation’s fastest growing energy sectors, is facing layoffs and factory closings as a federal subsidy nears an end.

Without legislative action, the federal Production Tax Credit, which has fueled the growth of wind farms from West Texas to New England for nearly two decades, will end Dec. 31.

In Texas, which generates more wind-powered electricity than any other state, the industry has been hit already by cheap natural gas.

What’s more, wind turbine capacity added in recent years has maxed out utility lines linking wind farms in West Texas to more populated areas, according to Doug May, economic development director for Pecos County.

“Without the tax credit, I don’t think Texas will see any wind farm development,” May said.

The tax credit gives wind power generators 2.2 cents for every kilowatt hour they produce. Congress has renewed the credit seven times and let it expire three times since it was enacted in 1992.

And each year after it expired, turbine installations dropped 73 percent to 93 percent, the American Wind Energy Association calculates.

Bipartisan support

The tax credit has bipartisan support, but advocates fear election-year paralysis will delay action for months. A coalition of 18 freshman legislators – including Republicans from the heartland and Democrats from the Northeast – wrote to congressional leaders last month urging them to bring an extension of the credit up for vote.

“More than half the jobs in the industry are expected to be gone by this time next year if the PTC is not extended,” the lawmakers wrote. “It would be a disservice to our country’s energy security to let an industry that has come so far suffer such a setback.”

On Thursday, Deputy Energy Secretary Daniel Poneman is scheduled to visit the Proinlosa Energy Corp. wind turbine manufacturing facility in Houston to tout the benefits of the tax credit and urge Congress to renew it.

The Spanish manufacturer of wind turbine parts has about 50 Houston employees. U.S. Sales Manager Scott Sattler said orders are declining as the expiration approaches.

Casualties likely

Many supporters are optimistic that the credit will be renewed, but doubt it will happen before the November election. And a last-minute deal probably won’t prevent mass casualties for the U.S. wind power business.

“Most of the damage has already been done,” said Matt DaPrato, senior analyst for IHS Emerging Energy Research. “There’s going to be a big drop-off in 2013 either way.”

Spanish wind corporation Gamesa will furlough or cut 165 employees – nearly 20 percent of its U.S. workforce – in September because of the uncertain future of the tax credit, said spokesman David Rosenberg.

Florida-based NextEra Energy, one of the nation’s largest renewable power producers, plans to add about 1,300 megawatts of wind power to its portfolio this year, according to spokesman Steve Stengel. But NextEra has no new U.S. wind projects slated for 2013.

Mitsubishi Power Systems Americas has mothballed its new $100 million manufacturing plant for wind turbine parts in Arkansas, blaming poor U.S. sales. In March, parent company Mitsubishi Heavy Industries announced it would book a $250 million loss for the fiscal year that ended that month, on a write-down of its wind-turbine inventory.

Mitsubishi said it sees few signs that the North American market will rebound, although the company says its wind turbine business in Japan, which benefits from favorable government policies there, is growing.

The pain isn’t being felt evenly across the wind power business.

General Electric’s wind turbine unit is having its best year yet in terms of revenue. And 2013 looks good, too, said spokeswoman Lindsay Theile.

The company will supply 137 wind turbines for Michigan farms next year, part of efforts to meet Michigan’s renewable portfolio standard. It requires that the state produce 10 percent of its power from renewable sources by 2015, according to GE.

About 30 states have policies mandating that a certain amount of their electricity come from renewable sources. But the impact of such state rules is limited, as electricity use has been fairly stagnant around the nation, and Texas surpassed its 10,000-megawatt target for renewable power capacity in 2009.

Further, if the tax credit expires, the cost of meeting those state standards rises, said Alex Klein, research director for IHS Emerging Energy Research.

“It shifts the cost of the renewable portfolio standards from the federal taxpayer to the electricity consumers in that state,” Klein said. “The market will be pretty challenged without the PTC.”

Time enough, say foes

Critics of the credit say it’s time for wind power to stand on its own.

U.S. Rep. Michael Conaway, R-Midland, who represents one of Texas’ leading wind-power regions, said he has supported the credit in the past. But he now believes it’s time to begin phasing it out.

Conaway wants to see the credit of 2.2 cents per kilowatt hour gradually shrink to zero over four or five years.

“Scaling back the production tax credit will affect jobs. I get how hard that is,” he said. “But for the greater good of this country, we can’t continue to do things the way that we have.”

Industry analysts say the cost of wind energy has fallen 25 percent to 50 percent over the past three years, depending on the region, as taller turbines and larger blades have made it easier to capture strong winds and generate more power.

But the quest to make wind power economical has been complicated by the domestic boom in natural gas production from shale. Even as wind power has become cheaper to produce, the price of natural gas has fallen even faster.

“Natural gas prices are almost a fourth of their 2007 average,” DaPrato said, “and that has made it difficult for those gains in wind power to be seen in the larger market.”

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