South Dakota’s wind energy industry is being held hostage in a high-stakes game of political chicken, delaying construction on new wind farms across the state and causing sleepless nights for at least one utility project manager.
An important tax subsidy for electricity generated from wind, solar and geothermal sources is set to expire at the end of the year, and House Democrats and Senate Republicans are squabbling over whether to extend it for one year and how to pay the $8.2 billion cost.
The battle is pitting South Dakota’s Democratic lawmakers – Sen. Tim Johnson and Rep. Stephanie Herseth Sandlin – against Republican Sen. John Thune, although all three are staunch supporters of wind power.
The tax break is especially important in the Midwest, where most new wind projects are being built and where wind developers need the extra 2-cent-per-kilowatt-hour subsidy to compete with cheaper but dirtier coal-fired power plants.
The looming expiration date and uncertainty about whether Congress will extend the so-called renewable energy production tax credit is making it more difficult for wind project developers to line up financing, industry officials say.
According to the South Dakota Public Utilities Commission, 25 wind energy companies have expressed an interest in developing about 1,000 megawatts of wind power in the state during the next few years. South Dakota already has eight wind farms, generating a total of 188 megawatts of electricity. One megawatt is enough to power 300 homes.
“Our message to Congress is very simple: There are thousands of jobs (nationally) at risk here, and we need to get this done,” said Marchant Wentworth, a clean energy lobbyist for the Union of Concerned Scientists. “Part of the job of being in Congress is to cut a deal here, and it would not be unusual to pass a piece of legislation that no one was completely happy with.”
Basin Electric, which supplies power to 126 rural electric co-ops in the Midwest, including 25 co-ops in eastern South Dakota, needs the tax credit to make its proposed 150-megawatt wind farm near Crow Lake financially viable, said Ron Rebenitsch, the company’s manager of alternative technologies.
Projects scuttled when credit isn’t renewed
Basin Electric already has ordered the project’s turbines and is going forward with its plan to break ground in spring 2010, Rebenitsch said. If Congress fails to renew the tax credit, Basin Electric will pass on the cost to its customers through higher rates, he said.
“I’m the project manager. That’s been my call,” Rebenitsch said. “I’m very concerned about the production tax credit. I lie awake at night thinking about it quite often.”
Congress has allowed the tax credit to expire three times since it was created 16 years ago – in 1999, 2002 and 2004. Each time, installation of new wind projects plummeted, according to the U.S. Department of Energy. Industry experts are betting Congress will renew the tax break late this year or early next year.
However, banks and investors are in no mood to gamble on that, said Wanda Davies, director of development for Navitas Energy, a Minneapolis-based company that builds and sells wind farms. Navitas is building a 200-megawatt plant, the White Wind Farm, near Brookings. The project now is owned by Babcock & Brown. Attempts to reach Babcock & Brown were unsuccessful.
“You’re not going to get funding based on the assumption it will be there,” Davies said about the overall dilemma facing wind developers. “The bankers are not going to take a risk. If you have a business plan that shows (the project) would work without the production tax credit, you would get the financing. If you say, ‘trust Congress,’ you’re not going to get financing at any affordable rate.”
How to pay for credits is at heart of dispute
Fights over how to finance it aside, extending the wind-energy subsidy is popular with members of Congress and President Bush.
The Senate voted 88-8 in April to add the extension to legislation that would rescue banks and homeowners from bad mortgages. The House subsequently stripped the provision out of the mortgage rescue bill because the Senate did not include a way to pay for it.
Senate Republicans refuse to go along with House Democrats’ plan to offset the cost of extending the tax credit. That plan consists of raising taxes on deferred compensation for offshore businesses and delaying the effective date for a tax break on foreign interest payments paid by U.S. multinational companies.
Top S.D. Democrats insist on no borrowing
A handful of Senate Republicans tried but failed to reattach the tax credit measure to the housing bill July 10, once again with no offsets to its $8 billion cost. The tax credit extension remains in limbo with no resolution in sight.
House Democrats, led by the fiscally conservative Blue Dog Coalition, have a rule that all new spending, unless it’s for an emergency, must be paid for by trimming costs somewhere else in the federal budget or by raising fees or taxes. The Senate does not have a similar requirement.
“This isn’t emergency spending,” said Herseth Sandlin, a member of the Blue Dog Coalition.
Johnson agreed that they need to find a way to pay for the extension.
“The cost of extending the tax credit should not be borrowed and added to the national debt,” he said. “We need to extend the wind energy tax credit because the incentive creates jobs in South Dakota by building new wind energy projects, such as the MinnDakota wind farm near Brookings. The Senate is very close to a deal on extending clean energy tax incentives in a way that doesn’t rely on borrowing money. I am hopeful an agreement to extend the credit can be reached this summer.”
Thune: Unfairly tied to other legislation
Reducing the federal debt is also a high priority for South Dakotans, said Herseth Sandlin, who blames House Republicans for the impasse.
Sen. Thune blames Nevada Sen. Harry Reid and House Democrats for the standoff. Several weeks ago, Reid tried to attach the wind-energy subsidy extension to legislation that would benefit trial lawyers and unions, and Republicans felt they had to block it, Thune said.
“They loaded it up with all this garbage, knowing we’re not going to vote for that stuff,” Thune said. “Hopefully, at some point, we can just pass (a bill) that we know everybody agrees on.”
Argus Leader Washington Bureau
13 July 2008
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