It’s not just the wind plains of Iowa and Texas. San Diego, too, is being buffeted by the election-year tussle over the future of a major federal tax break for wind farms.
Republican presidential nominee Mitt Romney has come out against extending the wind production tax credit beyond Dec. 31 as a matter of fiscal responsibility. The subsidy, which dates back two decades, has been embraced by President Barack Obama under his “all of the above” energy strategy that emphasizes renewable technologies and greater fuel independence.
Wind developers with headquarters or offices in San Diego are major players in the industry, overseeing several gigawatts of U.S. wind developments from Hawaii to Pennsylvania, as well as overseas projects that aren’t eligible for tax credits.
Three wind projects near San Diego – at the McCain Valley, the desert town of Ocotillo and across the Mexican border – are likely to move forward without help from the wind production tax credit.
Yet the future of the decades-old subsidy is likely to change San Diego’s mix of clean energy and how much customers pay for it.
At issue is this year’s political debate is whether the wind industry can survive without subsidies that grew out of the 1970s energy crisis.
The timing could be especially severe this year, given rock-bottom electricity prices tied to a domestic natural gas glut and near-stagnant power demands, said David Victor, an international relations professor and energy regulation expert at the University of California San Diego.
Doing away with the credit would shift the costs of future wind development from the U.S. taxpayer to the utility ratepayer in 29 states, including California, with requirement for expanding renewable energy.
“The extra money needed to make wind competitive won’t be coming from the federal government, it will be coming from the states, meaning it will be coming from ratepayers,” Victor said of a possible expiration. “What it will mean probably is that the cost of our renewable energy in California will become more apparent to Californians.”
The wind production tax credit is calculated at 2.2 cents for every kilowatt hour delivered over the first 10 years of a project. Added up, that can cover nearly a third of the cost of some industrial-scale wind power plants, according to several wind developers.
A banner year
In the rush to beat the expiration deadline, 2012 is on track to become a record year for turbine installations nationwide. The standing record was set in 2009, with the addition of 10 gigawatts of wind capacity – the energy-production equivalent at full tilt of 10 sizable nuclear reactors.
Among the construction projects racing to meet the year-end deadline are wind farms in Hawaii, Kansas and Pennsylvania backed by San Diego-based Sempra Energy, under 50-50 partnership with BP Wind Energy, a unit of the U.K.-based energy company.
The sweeping Flat Ridge 2 project outside Wichita, Kan., alone will supply enough energy to power about 125,000 homes.
Sempra U.S. Gas & Power spokesman Scott Crider said California’s mandate for 33 percent renewable energy by 2020 will continue to propel the local market without the federal credit – to some extent.
“Whether or not it’s … enough to overcome the expiration of the production tax credit is a question for SDG&E and other utilities,” he said. “It will certainly raise the price of the (wind) power as it competes against other renewable energy like solar.”
At the desert Ocotillo Wind project just east of San Diego County, the first soaring turbine towers are being perched atop concrete footings, weighty blocks the size of a house.
The Siemens-brand towers are made by Ameron International in Fontana. The blades are from Iowa, the nacelles – tractor-trailer-sized motors at the turbine fulcrum – are from Kansas.
But the project was planned on the assumption it would not receive the production tax credit, said Mike Garland, CEO of San Francisco-based Pattern Energy, which has offices in La Jolla and is controlled by the New York-based Riverstone private equity firm.
Ocotillo capitalizes instead on a 30-year right of way from the Bureau of Land Management, a 20-year power purchase agreement paid for by San Diego utility customers and a possible development bank loan backed by the U.S. and Mexican governments.
Pattern, like many wind developers, says that without the wind tax credit it is likely to concentrate efforts on states like California with robust legal mandates for more renewable energy.
As the production tax credit deadline looms, Garland said, Pattern will focus next year on its wind projects in Canada and Chile.
Iberdrola Renewables, the Portland-based U.S. arm of Spanish utility giant Iberdrola, has missed the 2012 tax credit expiration deadline as it invested eight years in planning the Tule Wind project on the eastern slope of San Diego County, securing most of its permits as it continues shopping for a utility to buy its electricity.
The credit would shift the economics of the project, making it something of a test case.
Iberdrola holds up its recently completed Manzana Wind Power Project near Rosemond in the wind-rich Tehachapi area as a prime example of economic activity linked to the tax break. Nacelles were built a half-hour from the site and other big parts delivered through the Port of San Diego.
SDG&E is buying the bulk of the facility’s electricity output over the next 20 years.
Other San Diego-based wind developers include the independent Cannon Power Group and Eurus Energy America, part of a holding company jointly owned by Toyota Tsusho and Tokyo Electric Power.
Escondido EDF Renewable Energy, a subsidiary of French state-controlled utility Électricité de France, has been racing this year to complete five wind projects in Solano and Kern counties in California, and Kansas and Texas.
Wind tax credits have expired before, only to be renewed retroactively. But times may be changing. In January, the 30-year-old federal tax credit for ethanol – long untouchable – was allowed to expire.
Another Sempra wind project just across the U.S. border in Mexico is slated to break ground early next year – tax credit or no tax credit.
Located on the central highlands of Baja California, Energia Sierra Juarez won’t be eligible for the subsidy because of its foreign location. The project will sell electricity back to California utility customers, helping SDG&E meet state-mandated renewable energy quotas.
|Wind Watch relies entirely
on User Funding