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End of tax credit a blow for wind power industry

The wind power industry is predicting massive layoffs and stalled or abandoned projects after a deal to renew a tax credit failed Thursday in Washington.

The move is expected to have major ramifications in states such as Illinois, where 13,892 megawatts of planned wind projects – enough to power 3.3 million homes per year – are seeking to be connected to the electric grid. Many of those projects will be abandoned or significantly delayed without federal subsidies.

The state is home to more than 150 companies that support the wind industry. At least 67 of those make turbines or components for wind farms. Chicago is the U.S. headquarters to more than a dozen major wind companies that wanted to take advantage of powerful Midwestern winds.

Wind proponents tried to tuck the tax credit extension, which provides an income tax credit of 2.2 cents per kilowatt-hour for the production of electricity from wind turbines, in legislation aimed at extending payroll tax cuts. But congressional leaders did not include it in that bill.

There is still a possibility the wind power tax credits could come through as a stand-alone bill or tied to other legislation. But Washington insiders say that is unlikely to happen before the election in November.

By then, the wind industry says, it will be too late to avoid massive layoffs and project delays, because wind projects slated for 2013 should already be far along.

In order for developers to receive the expiring tax credit, they must have turbines up and running before year’s end. As a result, 2012 is shaping up to be a banner year as developers race to complete projects.

But few such projects are slated for 2013. Developers say they either accelerated projects to be completed this year or pulled back because of uncertainty about the tax credit. Contributing to the bleak outlook for 2013: competition from cheap natural gas and anemic demand for power as the economy struggles to pick up steam.

“We simply have not see that strong demand for new power generation,” said Daniel Shreve, director and partner of MAKE Consulting, a wind energy consultancy with an office in Chicago.

The tax credit, which debuted in 1992, has a history of one- to two-year extensions and years in which it wasn’t extended at all. A bill tied to the American Recovery and Reinvestment Act of 2009 extended the program until the end of 2012.

Kevin Borgia, who heads the Illinois Wind Energy Coalition, said several years of stability for the tax credit helped drive down costs for wind generation. Without the tax credit, the market for wind power generation will grind to a halt, he predicts.

Paul Bowman, vice president of development at wind developer E.ON Climate and Renewables North America, which has its North American headquarters in Chicago, said his company had about $1 billion in construction planned for next year, tied to the tax credit extension.

“If we got an extension in the next couple of months, we’d be able to build some or all of those projects,” Bowman said. “If it gets extended at the end of the year, it is too late.”

Bowman said a year’s delay can kill some projects, partly because contracts to lease land to host turbines and interconnection agreements with utilities have expiration dates.

Turbine-makers and development companies already are laying off employees, Bowman said.

Even the February deal was too late, said Naomi Lovinger, spokeswoman for Nordex, a wind turbine manufacturer with its North American headquarters in Chicago.

That’s because of the long lead time for wind projects. Projects slated for 2013 had been in the pipeline for two to five years because of hurdles that include local and national permitting and environmental testing.

“There is years and years of work that is done before a developer turns to a company like Nordex and says, ‘Hey, we’re ready to go, and now we want to talk about what turbines to put in and where we want to put them in,'” Lovinger said.

Navigant Consulting expects 37,000 industry jobs to be eliminated within the year.

“They’re shutting down production lines,” said Peter Kelley, spokesman for the American Wind Energy Association.

Terry Royer, CEO of Winergy in Elgin, which manufactures gearboxes for wind turbines, said the company plans layoffs but declined to provide specific numbers of how many employees would lose their jobs.

“We solely exist to support the wind industry. Ninety percent of our market is the U.S. market,” he said.

Immediately at risk in Illinois are 15 wind projects totaling 3,292 MWs that have county-level permits. In general, since developers don’t bother going through the county permitting process unless they are serious about a project, the number of permitted megawatts is usually seen as a good indicator of near-term growth.

Among those projects are a 200 MW wind farm slated for Boone County near Rockford and a 437 MW project that straddles Lee, Whiteside and Bureau counties in the northwestern part of the state.

Both were slated for construction in the next 12 to 24 months but now would be delayed, said Matt Boss, a project manager with Mainstream Renewable Power.

Some turbine-makers are considering foreign markets as their lifeline.

Dan McDevitt, vice president of operations at Nordex, said the company will likely look to Canada, Mexico and Latin America for business.

“We’re not growing. We’re not going to be adding people. It’s sort of a standstill,” McDevitt said.