Another year has passed and Congress is once again trying to decide whether to extend the wind energy Production Tax Credit beyond January 1, 2014.
President Obama often has called for the wind Production Tax Credit to be made permanent and refundable. Some predictable opposition in Congress will denigrate the advancement of renewable energy in an era of abundant methane gas from fracking, and challenge the need for subsidies in the age of the sequester.
Layoffs are in the thousands whenever the wind energy industry spends a year in a slowdown as it has and usually does at the end of each PTC or Investment Tax Credit (ITC) expire-extend cycle. The previous PTC cycle was less than a year ago.
In 2012, over 13,000 megawatts of new wind power capacity were added to the U.S. grid. Wind energy for the first time became the top source of new U.S. electricity generation capacity, accounting for $25 billion in U.S. investment.
In the first three quarters of 2013, however, the U.S. wind industry has installed only 69.9 megawatts of new capacity.
Solar power experiences the same boom-and-bust cycle from short-term incentives. If tax credits expire before facilities qualify then the financial returns become less attractive. At some point in the cycle investors prefer to wait and see whether the credits will be renewed this time around.
When it comes to attracting investors there’s a big difference in tax law between renewables and non-renewables, which we’ll get to in a moment. For now I’ll note that fossil fuel subsidies are permanent until Congress decides to end them; renewable energy subsidies like the PTC expire unless Congress decides to renew them.
Then just don’t renew the PTC, writes Davis Swan, a career veteran of the oil and gas industry, in EnergyBiz. Swan is unimpressed with the results from investing “something close to $100 billion in wind generation” because utilities continue to operate fossil-fueled power plants to meet growing demand. “No thermal generation plants have been decommissioned solely because of the existence of these wind farms.”
Tell that to the people who have jobs in the wind industry. Decommissioning coal plants isn’t their main concern. Mark Jaffe reports in the Denver Post that Vestas is hiring by the hundreds at its Colorado factories, filling jobs the company slashed last year when lawmakers delayed the PTC extension.
Colorado isn’t the only state to benefit from the recent expansion of wind power, blogs AWEA’s Kevin O’Rourke. Wind energy is so pervasive in the U.S. that “76 percent of all elected representatives currently have operating wind projects, wind-related manufacturing facilities, or both in their districts.” Wind turbines are big, complex machines, so “nearly 70 percent of each turbine is now American-made” at 555 manufacturing facilities across 44 states. Over 25,000 Americans have “well-paid jobs at a time when much manufacturing continues to move overseas.”
So should we preserve the PTC and the jobs it supports, or kill the PTC and the multibillion-dollar subsidy it provides to wind energy developers?
Do neither, writes MIT’s Kevin Bullis in Technology Review. Instead, “Congress should take this opportunity to change the credit system so that it does more to spur innovation.” Stopping short of making the PTC permanent, Bullis suggests stabilizing it for a fixed time and then decreasing the size of the credit on a predictable schedule so that “it becomes clear that new technologies will be needed to keep wind farms profitable.” Congress could go a step farther and “specifically require innovation as a condition of getting the tax credit” to force developers out of conservative buying patterns.
Instead of trying to fix the PTC, let’s extend a tax preference that already applies to oil, natural gas and coal industries, writes Ken Silverstein in Forbes. A master limited partnership (MLP) is a business structure that is taxed only at the shareholder level because it is treated as a partnership for tax purposes, but whose equity is traded like shares on a stock market, “making them a valuable part of building long-term energy infrastructure projects.” In contrast, publicly traded C corporations pay taxes on their profits, then shareholders are taxed again when they receive dividends or make a capital gain.
MLPs reduce the cost of capital and increase financial returns. But the federal tax code for MLPs requires their energy sources to be depletable resources, notes Delaware Senator Christopher Coons, who introduced The Master Limited Partnerships Parity Act last summer, “meaning we are working against our own goal of an ‘all of the above’ energy strategy that includes additional homegrown renewable energy sources.”
“Let’s level the playing field,” says cleantech analyst Ron Pernick. Why shouldn’t renewables be able to use MLPs to attract capital and lower costs? “It’s a simple tax code change. It could be done by Congress or the IRS. It would go a long way.”