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An expiring tax credit threatens the wind power industry  

Credit:  By KATE GALBRAITH | The New York Times | www.nytimes.com 13 September 2012 ~~

When Brad Sawyer graduates next spring from Texas State Technical College in Sweetwater, he hopes to get a job as a wind turbine technician, working on the towering three-bladed machines that dot the West Texas countryside.

“I think that the jobs will be there,” said Mr. Sawyer, who is in the wind energy technology associate’s degree program. However, he added, if the federal government changes its policy on wind power, things could get “pretty tight.”

Mr. Sawyer and wind power companies are closely watching developments in Washington, where a tax credit benefiting wind farms is due to expire at the end of this year. The implications of that could be especially significant in Texas, the top wind power state, which contains about a fifth of the nation’s turbines and is building expensive transmission lines to support more growth.

Some of the state’s leading Republicans, despite advocating for wind power in the past, are now doing little.

“We haven’t had the industry come to a stop like this before in a long, long time,” said Walt Hornaday, president of Cielo Wind Power, an Austin-based wind farm developer. His company is pursuing work in other countries, but otherwise, he said, “we would definitely be looking at very large layoffs.”

Federal tax policies lie at the heart of the industry’s woes. An incentive called the production tax credit, in existence since 1992, expires in December. It allows wind farm owners to lower their tax bills in exchange for producing electricity. Wind companies want Congress to extend the credit, as has happened many times before, to sustain their emissions-free and drought-proof energy source. But a growing number of Republicans, including the presidential nominee Mitt Romney, are pushing back against green energy subsidies.

Senator John Cornyn, Republican of Texas, who has approved extensions of the credit in the past, voted in the Senate Finance Committee in August against a bill containing a one-year extension. (The extension passed the committee but remains stuck in Congress.) However, he would back a one-year extension if the tax benefits were reduced by 20 percent.

“People are starting to question, and that’s a good thing, but it’s taken a long time,” said Patricia Lapoint, who lives near a West Texas wind farm and has been fighting the industry for years.

Jessica Sandlin, a spokeswoman for Mr. Cornyn, said in an e-mail that the senator “believes Congress must undertake real, comprehensive tax reform rather than a piecemeal approach.” Similarly, Gov. Rick Perry, viewed as a wind power stalwart for championing transmission lines and signing a renewable energy mandate in 2005, now emphasizes the need to remove federal energy subsidies – a popular talking point among Tea Party supporters.

Because wind farms must begin operating this year to be eligible for the credit, which they can then claim for 10 years, developers are rushing to finish wind farms. Next year, activity is expected to drop sharply. Construction is especially busy in parts of South and North Texas, said Andy Bowman, the president of Pioneer Green Energy, an Austin-based renewable energy developer. West Texas has seen activity slow while more transmission lines to carry the power get built, he said.

Some wind experts think the credit extension will ultimately pass Congress, albeit after the November election, because it has strong bipartisan support in other windy states (if not Texas). But others do not, and the industry is bemoaning the difficulty of long-term planning. A one-year extension could mean the wrangling resumes next year. Mr. Hornaday said that Texas could benefit more than other states from an extension because there are fewer rules here, making wind farms easier to build.

If obstacles to permits surface in other states, Mr. Hornaday said, “I can always pick up the turbines and put them in Texas.”

But if the credit is not extended, the surviving development activity could move to states with clean-energy requirements or higher energy prices than those in Texas, Mr. Bowman said. (Texas has long surpassed its renewable power mandate.)

Texas is feeling the slowdown. Vestas, a major turbine manufacturer based in Denmark, is closing a research and development facility in Houston that opened just three years ago and once employed 75 people. Trinity Industries, a Dallas-based manufacturer of industrial equipment, foresees a “significant decline in wind tower production in 2013” if the credit expires, according to comments in July by William A. McWhirter II, a senior official with the company.

Officials are also expressing concerns about wind power’s role in the Texas electric grid. Wind accounted for 8.7 percent of the grid’s energy for the first eight months of this year. But some officials recently complained that the turbines bring down wholesale electricity prices because their fuel – wind – is free, and the production tax credit reduces the price further, so sometimes it is even negative.

As the theory goes, this cheap energy cuts into the profitability of companies that operate natural gas– or coal-fired power plants, making them disinclined to build new plants, which are needed to keep the lights on.

Last week at a State Senate committee hearing, Donna Nelson, chairwoman of the Public Utility Commission of Texas, blamed federal renewable energy incentives for distorting the market and being “one of the primary causes” of the grid’s current strains. Wind advocates counter that the abundance of natural gas, not wind, is the chief reason power prices are low.

“I think we all need to move with extreme caution before adopting any additional incentives or mandates,” Ms. Nelson said.

Ms. Nelson’s agency has helped give wind power an important lift. Because of legislation passed in 2005, Texas is building $6.9 billion in transmission lines – about $270 for every Texan – to transport wind power from West Texas to cities hundreds of miles away. The lines should be finished by the end of next year, and costs will be recouped from ratepayers, subject to the approval of the utility commission, which is overseeing the buildout. The expansion is supposed to increase the amount of wind power currently on the Texas grid by about 60 percent or more.

But if the tax credit expires, there might not be as much wind power at the end of the lines as Texas officials had envisioned, at least initially.

“It’s kind of like in real estate – if you build a bunch of roads to real estate development, and then the real estate market comes to a stop, eventually houses will get built,” Mr. Hornaday said. “But yes, there’s a pretty big potential that a lot of those improvements will be idled for a few years.”

Wind faces other obstacles, too. Texas officials have recently begun scrutinizing property tax breaks that wind developers receive and are listening to naval aviators’ concerns about radar interference from the turbines that have proliferated along the Texas coast. Asked what to expect during the next legislative session, Russel Smith, the executive director of the Texas Renewable Energy Industries Association, said he planned to emphasize the economic development benefits of wind.

“There’s certainly a sense that even more than last session,” Mr. Smith said, “there’s going to be a lot of playing defense.”

Source:  By KATE GALBRAITH | The New York Times | www.nytimes.com 13 September 2012

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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