Wind's tax credit winds down, but debate at full force

The controversial production tax credit given to wind-energy developers expires Tuesday at midnight. But the controversy won’t disappear with the new year, spawning instead new discussions about potential compromises over who gets what in the federal subsidy pie.

The relative stop-and-go nature of the terrestrial winds typifies the political treatment the industry has received, with the tax credit often traded as a bargaining chip within bigger energy legislation. The traditional argument against the subsidy is that it is costly to the US Treasury and that it creates economic inefficiencies, forcing capital into assets that are less productive and which may not be able to otherwise stand on their own.

But proponents of the federal assistance say that it is doing its job and that it has led to the development of 60,000 megawatts of wind generation. That growth, in turn, has caused production costs to fall by 80 percent over the last 20 years. Altogether, the industry supports 85,000 jobs, says the American Wind Energy Association.

“We want to continue that momentum, but need predictable policies for industry to avoid future slowdowns like the one experienced at the beginning of 2013,” says Tom Kiernan, chief executive of the wind group. Utilities have agreed to buy 5,670 megawatts of new power this year while 2,300 megawatts are getting built.

But that expansion is at risk. At issue right now is the production tax credit that awards wind developers 2.3 cents for every kilowatt-hour they produce. Last New Year's Day, after a ferocious debate that occupied a portion of the 2012 presidential debate, Congress passed a one-year extension of the wind-energy credit as part of the fiscal-cliff legislation. Under the last-minute deal, wind developers who make good-faith efforts to begin wind projects this year and which continue into 2014 will qualify for 10 years of subsidies, even though the credit expires for new projects.

Democratic lawmakers in both the US Senate and House are calling for a renewal of the credit, saying that clean-energy development is at stake, especially as the nation tries to diversity its energy mix. Implicit in their letters to colleagues, is the understanding that the effort won’t get done by year-end – but that it could get tended to at the start of the year, and made retroactive.

“These tax credits have helped scale up production and drive down the cost of clean-energy technologies,” says Sen. Ed Markey (D) of Massachusetts.

Wind developers say that the production tax credit is responsible for adding $15.5 billion a year to the US economy while opponents say that it is costing the federal government about $1 billion annually. Where one sits not just politically but also geographically contributes to their thinking. States such Kansas and Iowa, for example, have Republican governors who support an extension of the credit, given that they are big wind generators. The Governors' Wind Energy Coalition says that political gamesmanship is putting billions in capital formation at risk.

But the American Energy Alliance, which represents the interest of oil, coal, natural gas companies, says that keeping the wind energy’s production tax credit off the legislative agenda is one of its top priorities. Fossil fuels, it adds, provide about 70 percent of the electric generation mix while renewable energy – including hydro – provide about 10 percent. But the group says that green energy received 55 percent of the federal assistance.

“The growth in wind is driven not by market demand but by a combination of state renewable portfolio standards and a tax credit that is now more valuable than the price of the electricity that the plants actually generate,” says the alliance, in a letter to US lawmakers.

In point of fact, the federal government’s largess is only so big. But the current debate over the production tax credit queue’s up an even bigger discussion over where such assistance is best targeted. Free-market thinkers say that wind and solar are providing low-overall returns in terms of job creation while New Economy advocates say that the seed money is essential to foster 21st-century livelihoods.

According to the nonpartisan Congressional Budget Office, renewable-energy subsidies have exceeded those given to fossil fuels since 2008. Taxpayer dollars started flowing to green-oriented projects in earnest in the 1970s; tax breaks for oil and gas began in 1916.

In 2010, fuels of all stripes were awarded about $37 billion in taxpayer funds, according to the US Energy Information Administration’s latest analysis. The wind sector received $4.2 billion of that from the stimulus plan enacted in 2009.

Is there a middle ground? The production tax credit may need to be pared down, partly to reduce budget pressures and party to sidestep arguments that it distorts markets. Reducing the subsidy could then pave the way for a longer and more certain extension.

At the moment, the various energy-related contingencies are all gunning for each other. But such a strategy can backfire – especially if a certain interest group lacks the political muscle and must build a coalition of supporters. Wind developers, who often live and die by the prevailing political currents, know this all too well.