Wind energy industry anxious over tax credit
How big a deal is two cents? Well, it’s a big deal if you’re trying to produce wind energy. A federal production tax credit of 1.9 cents per kilowatt hour is set to expire at the end of the year. Wind energy producers generally expect lawmakers to renew the credit, but Congress has yet to act. With time running out, the wind power industry is scrambling.
St. Paul, Minn. — The wind is blowing hard as David Norgaard drives into a farm meadow near Lake Benton in southwest Minnesota. Even in this windy part of the state the gusts are unusually strong as they growl and whistle through the guy wires of a tower located straight ahead.
“This one is 60 meters, which is just under 200 feet tall,” Norgaard said.
The tower holds equipment which measures the strength of the wind. The gauges on the tower spin rapidly in the gusts. They continuously track and record wind speed and direction.
Norgaard said the information is important in planning the wind farm he and a large group of investors hope to construct near this site.
Norgaard said 150 local investors want to put up 15 wind turbines. The project will cost more than $50 million. He said everything’s on track for construction next year, except for one item: The production tax credit, a key federal subsidy for the project, is set to expire at the end of the year.
“Things will come to a screeching halt if they don’t extend the production tax credit,” Norgaard said.
The project is unlikely to be built without the credit, Norgaard said. Losing the tax credit would push the price of the wind farm’s electricity so high it’s unlikely any utility company would buy it.
This is not the only project Norgaard has in the works. In all, he’s involved with planning four wind farms, which will cost a total of about $200 million.
As unlikely as it might seem, Norgaard said despite the uncertainty surrounding the tax credit, he’s got to keep moving forward as if there’s not a shred of doubt that the PTC will be renewed.
“You have to forge ahead, you have to continue to work the projects on a daily basis,” Norgaard said. “There are too many intricate, complex components that have to be completed on timetables and milestones. And if those milestones don’t get completed and don’t get met, those projects will never come to fruition.”
Even the biggest wind developer in the U.S., Minneapolis-based Xcel Energy, is feeling the impact of the tax credit issue.
Xcel was worried enough about the production tax credit expiring that it made sure a new wind farm under construction in southeast Minnesota will be completed before the end of the year.
Xcel’s Frank Prager said the end of the tax credit on December 31, is rippling through the wind industry. He said many U.S. companies are rushing to finish projects before the deadline.
If they get them done by December 31st, they still get the tax credit for ten years.
“That means that the wind marketplace right now is going crazy,” Prager said. “It’s driving the cost of wind turbines through the roof. It means that a lot of developers are working day and night trying to get their projects finished, so that they can meet that production tax credit deadline.”
By one estimate, the cost of wind turbines has spiked 30 per cent higher in the last two years. Prager said there’s also a long-term concern over the tax credit. He said if congress fails to renew it, consumers eventually will feel the cost.
“Without the production tax credit, we’re going to see that it will be more difficult for us to be able to bring more wind onto the system because our customers will have to pay more for it,” Prager said. “Now we can still do it of course but it will just mean that the price of power will go up.”
Xcel Energy and other Minnesota utilities are under a state mandate to sharply increase the mix of renewables like wind in their energy portfolios. But there is a state mechanism in place to modify or delay the mandates if costs rise too much.
Southwest Minnesota wind developer David Norgaard said there’s a real danger to the wind industry if Congress fails to act. And he said the profits from his project are important to the local economy.
“It will generate about $525,000 in cash back to those local shareholders on an annual basis,” Norgaard said.
He said renewing the tax credit will insure that all the wind whistling around him can one day power some brand new turbines.
by Mark Steil
28 August 2008
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