Over the past several years, the U.S. wind industry has been fueled by a combination of renewable portfolio requirements and a federal production tax credit (PTC), which provides a 2.2 cents per kWh tax credit during the first ten years of operations. The PTC, however, is set to expire at the end of 2012 which could bring this high flying industry to a screeching halt. The issue crosses party lines as both red and blue states have benefitted from wind development. On November 2, 2011, Representative Reichert (R-WA-08) and Representative Blumenauer (D-OR-03) introduced bi-partisan legislation (H.R. 3307) to extend the renewable energy production tax credit through 2017. That bill was cosponsored by eight Democrats and six Republicans, giving the industry hope that even in a difficult political environment focused on deficit reduction that the tax credit will be renewed.
PTCDoing What Was Intended
The PTC tax incentive was created under the Energy Policy Act of 1992 and originally expired in 1999 but has since been renewed and expanded on several occasions. An alternate tax incentive was put in place under Section 1603 of the American Recovery and Reinvestment Act of 2009, where a wind project developer can choose to receive either a 30 percent investment tax credit (ITC) or the PTC for projects placed in service before 2013.
These tax credits, set to expire next year, have done what was asked of themto increase wind generation and reduce costs. When the PTC was allowed to expire in the past (2000, 2002, and 2004), wind development dropped to almost no activity, creating a boom-bust cycle in the industry. The American Wind Energy Association (AWEA) reports that 8,482 MW of wind generation is currently under construction involving over 90 separate projects spanning 29 states. Colorado is the leading state in 2011 for installations with over 500 MW of Xcel Energy projects coming online this year. Texas is, by far, the largest wind development state with over 10,223 MW of installed capacity, but activity is tailing off as evidenced by only 88 MW of new installations coming online through the third quarter of 2011.
Supporters of the PTC are urging Congress to act now to avoid setting back the industry which has made great advances such as lowering costs by 90 percent and generating the annual energy consumed by 10 million average U.S. households.
PTC Renewal Uncertainty
Despite what many would consider the success of the PTC, there are those arguing against its renewal. In these times of deficit reduction debates, the PTC tax subsidy is sure to come under the microscope given that some estimates have it costing taxpayers over $2.5 billion per year if extended. And PTC benefits are not spread uniformly from state-to-state, since a viable wind resource for commercial development does not exist in many states. Finally, opponents argue that it is time to begin to wean the wind industry from subsidies, since the principal objective of the tax credit—to lower the cost of wind to competitive levels—has already been met.
In May 2011, Senator Lamar Alexander (R, TN) summed up his points on wind tax subsidies during a debate about tax benefits provided to oil companies: “The federal taxpayer support for renewable energy is at least 50 times as great per unit of energy as compared with fossil fuel energy. So why aren’t we including subsidies for all renewables in our debate? Specifically, if we are talking about ‘Big Oil,’ why don’t we talk about ‘Big Wind’?… The total cost of the wind production tax credit over the next 10 years will cost the American taxpayers more than $26 billion. Let me say that again. American taxpayers are subsidizing big wind over the next 10 years by more than $26 billion with one tax credit. In fact, the tax breaks for the five big oil companies we have been debating on the Senate floor this week actually cost less than all of the money we give to big wind. The tax breaks for the five big oil companies amount to about $21 billion over 10 years.”
Where the political winds will blow in 2012 is anyone’s guess. Proponents for renewal appear to have momentum as evidenced by the bipartisan introduction of a bill to extend the PTC. As an added boost, just before the Thanksgiving break, 23 governors sent a letter to Congress supporting renewal of the tax credit. The wind industry has many achievements to claim, such as domestic production of wind turbine components growing 12-fold in just six years, and more than 400 business-related facilities in 43 states. But a key challenge facing the tax credit renewal is that any extension of PTC is likely to get wrapped up in other bills (rather than as a stand-alone bill). And given the track record of broad bills in recent years, the PTC (and the wind industry) could easily get lost in the fog of bigger issues.