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South Texas wind farm developers cautious as tax credit expires

COASTAL BEND – The future of the South Texas skyline could hinge on a dogfight among Washington lobbyists between now and the election.

With at least half a dozen Coastal Bend wind farms in development, the likelihood that any of them will be built in the next few years may depend largely on whether a lame-duck Congress renews a 20-year-old wind energy tax credit set to expire Dec. 31.

Three projects in Nueces, Kenedy and Kleberg counties would, if built, represent a 44 percent increase in the area’s wind generation capacity, with at least 200 new turbines. The projects have received determinations from the Federal Aviation Administration that they don’t pose flight hazards, a key step in clearing regulatory requirements.

But the wind farms partly are at the mercy of the lawmakers and dueling lobbyists at the center of a highly politicized debate about wind energy subsidies. The production tax credit gives wind developers a tax break of 2.2 cents per kilowatt hour of electricity they produce for 10 years. It can reduce the cost of a project by about a third.

The industry has weathered uncertainty about the credit as it has come up for renewal in the past, but a growing chorus of Tea Partyers, Republicans (including GOP presidential nominee Mitt Romney) and some competing electricity producers such as natural gas plants argue that wind power now must stand on its own without government help.

Expiration of the credit would have a significant impact on development of about 80 turbines near Petronila in Nueces County, said Patrick Woodson, chief operating officer for Germany-based E.On Climate & Renewables in North America. The company wants to build in 2013.

“Lack of (the credit) could severely halt the progress,” Woodson said.

Dru Steubing, managing member of Texas Wind Group, has said the credit is one of many factors, including investors’ confidence, that will affect plans to build about 80 turbines near Riviera in Kleberg County.

“We’re waiting just like everybody else,” Steubing said. “We’re still doing all of our due diligence and making sure the project is ready to go.”

The Peñascal 3 wind farm, slated to be built by Spain-based Iberdrola Renewables, near its Peñascal 1 and 2 projects, would add 84 turbines to the skyline south of Baffin Bay in Kenedy County, according to FAA records.

“The PTC is a pretty important piece of the puzzle,” Iberdrola spokeswoman Jan Johnson said. “We’re still advancing the Peñascal 3 project. We have a goal of building when market and regulatory conditions improve. Prices have been depressed for some time, too.”

The industry is seeing stiff competition from natural-gas fired plants thanks to an abundance of cheap supplies from shale formations including Eagle Ford in South Texas.

Kansas-based Tradewind Energy has announced three Coastal Bend projects – Midway Farms in San Patricio County and Palo Alto East and West in Nueces County, with potentially dozens of turbines each – but they don’t have FAA clearance yet, records show. A spokeswoman said the company could not comment on the project for the next two weeks but would not explain why.

Wind companies often keep project details confidential for competitive reasons and while approaching landowners to negotiate potential leases.

Effects of the looming tax credit expiration already have been felt. For a project to qualify, it must be brought online in 2012. This has led to a flurry of building in some places but also the shedding of jobs, largely among manufacturers of turbine parts.

The American Wind Energy Association has reported hundreds of mostly manufacturing jobs cut since January and says expiration of the credit would lead to as many as 37,000 layoffs in jobs directly and indirectly related to wind energy.

Despite the uncertainty, in Corpus Christi, turbine tower sections and blades as long as jetliners still slip under the Harbor Bridge and into port.

The Port of Corpus Christi has experienced a spike in wind turbine cargoes as companies attempt to move in as much of the equipment under the tax credit as possible said Ruben Medina, port deputy director of business development.

There are future possibilities of the port being an export center for equipment made at wind companies’ American facilities as wind projects in Latin America begin to take shape, Medina said.

Russel Smith, director of the Texas Renewable Energy Industries Association, said he remains optimistic.

“I believe that after the election that a lot of the political positioning and posturing that has led us to this point will subside,” he said.

Some lawmakers say the subsidies should continue, but for a shorter time or with a smaller tax credit, providing more flexibility in setting future federal budgets.

Smith said a one-year extension could position Texas, seen as having a less cumbersome regulatory environment for wind projects than other states, to take advantage, because projects could get off the ground within the year.

“I think history has proven that,” he said.

Steubing said 18 months or two years would be more feasible for developers.

“You’re still trying to get a lot of money and other things in place in a short amount of time,” he said.

Also expiring Dec. 31 is the investment tax credit for offshore wind farms, which could affect one closely-watched South Texas project.

Austin-based Baryonyx Corp. is planning what could become the first offshore wind farm in Texas. It would install about 200 wind turbines in each of three areas off the South Texas coast, two in state waters off South Padre Island and a third either east of Mustang Island or east of Baffin Bay.

The projects are likely to be in the environmental study phase into 2014, said Graeme Walker, the company’s chief commercial officer.

The credit, part of the 2009 economic stimulus, gives offshore wind projects a tax credit of 30 percent of capital expenses. Extensions of the credit in various forms have been proposed in a few bills, none of which are making progress, Walker said.

“We’d hope there’s more of a spirit of cooperation in D.C. after Nov. 7, regardless of who wins,” he said.

Reporter Mike D. Smith contributed to this story