Federal lawmakers and wind industry advocates are battling over the production tax credit that put wind energy on the map.
Wyoming’s congressional delegation wants to see it expire. Champions of renewable energy want to see it continue.
The tax credit hung on by the skin of its teeth in the closing moments of 2012. It was on the brink of extinction in the final minutes of the fiscal cliff negotiations, but in a surprise move Congress extended the credit for one year.
The extension came to the chagrin of lawmakers who see the credit as corporate welfare for an industry that’s outgrown its dependence on federal subsidies. For the producers and other players in the industry, the credit’s survival puts wind on a level playing field with fossil fuels.
Federal tax breaks for wind power and other renewable sources of energy are the latest in the nation’s long history of government-offered incentives for the energy industry, said Aaron Severn, director of federal legislative affairs for the American Wind Energy Association. The federal goverment provided assistance to the oil industry in 1916, according to a Congressional Research Service report states, and subsidies for mining and other industries date back to the 1800s. A number of the credits have morphed into what amount to permanent subsidies for both large and small fossil fuel producers.
The credits’ concrete status in a tax code provides long-term certainty for producers in the energy industry, Severn said, and it’s what the wind industry would like to see.
“We’re kind of envious,” he said.
Congress approved the wind energy credit in 1992—long before renewable energy was a mainstream talking point—to help an industry still wet behind the ears. Since 1980 the cost of wind power generation has been reduced by 90 percent and private companies have sprouted nearly 500 wind power facilities across 44 states, according to the AWEA. The sector’s growth suggests a maturity during the last three decades. But many question if producers, manufacturers and taxpayers can afford to see the credit expire.
Wyoming lawmakers think so.
Rep. Cynthia Lummis, R-Wyo., wants taxpayers to stop footing the bill for the wind industry. She voted against the fiscal cliff legislation for a myriad of reasons, with the extension of the production tax credit being one of them. Even though the Wyoming wind sector is emerging as player in the industry, there are future challenges that shouldn’t be funded by taxpayers, she said in a subcommittee meeting on the efficiency and effectiveness of wind power on April 16. The wind industry is now mainstream and undeserving of a subsidy, she said in the meeting.
“The American tax payers are taking the financial risk and investors reap the rewards,” she said in a statement to the Star-Tribune. “Established industries shouldn’t be given tax credits by a government struggling to cover its own bills. Rather, until such time as a comprehensive rewrite of the tax code becomes law, wind producers can enjoy tax deductions used by every other manufacturer. That, at least, would be a level playing field as far as taxpayer dollars are concerned.”
The U.S. wind energy industry saw an influx of $25 billion in private dollars in 2012, said Ellen Carey of the AWEA. The synergy of public and non-taxpayer dollars has spurred wind farm development that harnesses Wyoming’s powerful winds. Despite the credit’s incentive for private business to invest in wind, the subsidy does not come without waste, according to a report from the Government Accountability Office.
At a cost of $4 billion, nine federal agencies implemented 82 different initiatives supplementing the wind industry in 2011. Seven projects received duplicate financial support and two projects may not have needed the funding at all, according to the report.
Sen. John. Barrasso, R-Wyo., discussed the report and commented on the cost of wind subsidies during an April 18 debate in the Senate Energy and Natural Resource Committee on the Department of Energy’s 2014 budget request. He voted in favor of the fiscal cliff deal to prevent myriad tax hikes, not to keep the production tax credit alive, said Laura Mengelkamp, a spokesperson for the senator.
Barrasso cited the report and asked DOE Acting Secretary Daniel Poneman if a nearly $100 million hike in wind energy and $900 million more on other renewable energy projects was a prudent recommendation in President Obama’s budget.
Poneman vowed his agency would root out the inefficiencies but said renewable energy project pay dividends.
“We’ve put $2 billion into (research and development) funding for wind and we got a $9 billion return on that,” Poneman said in testimony before Congress. “ We live by a management principle of continued improvement.”
Severn said the report was “misleading” because there aren’t 82 subsidies available to the wind industry. There are only two wind-specific subsidies: the production tax credit and what’s known as the Section 1603 grant, which is seldom used by producers and manufacturers, he said.
Sen. Mike Enzi, R-Wyo., doesn’t have a stance on the production tax credit but questions if an extension into 2014 is practical, said Daniel Head, spokesman for Enzi.
“Companies have come to rely on America’s complex tax code and Sen. Enzi believes we should consider the feasibility of simply ending a credit like the PTC versus phasing it out through fundamental tax reform,” Head said in a statement to the Star-Tribune. “The Senator did support changes to the PTC last year in the Finance Committee that would have reduced the PTC by 20 percent because he has been told by wind developers that the current level is unnecessary.”
The AWEA supports a gradual reduction and the eventual phasing out of the credit that would reduce the subsidy by 40 percent in 2018.
If the credit fails to enter its 22nd year, most producers in the industry won’t fret, said Loyd Drain, executive director of the Wyoming Infrastructure Authority. If the taxpayers stop funding it, producers will hand the costs over to consumers, Drain said.
For the industry, producers have seen the conflict over the credit for quite some time. To some of them, it’s not a big deal.
“We’d love to take it, but it’s not a game changer,” said Kara Choquette, spokesperson for the Power Company of Wyoming, developer of the 1000-turbine Chokecherry and Sierra Madre wind project and subsidiary of Denver’s Anschutz Corp.
Wyoming is known for its powerful wind compared to other parts of the country, but other than Colorado, Wyoming and its neighbors have relatively few manufacturing plants for the turbines erected in the region. Wyoming has none. Colorado leads the pack with more than a dozen. But Wyoming’s other neighboring states each have less than four factories, according to the AWEA.
Without a manufacturing base, all Wyoming can do to take part in the wind power sector is harness the winds that sweep the state. Talks of selling wind to California, New Mexico and other states in the Southwest make wind producers envious. There are some legislative hurdles the producers need to clear with the state, but as long as the states’ Renewable Portfolio Standards remain in place the wind industry will prosper, Drain said.
The standards are benchmarks that some states use to outline how much wind power they want to consume by a certain year, as part of their overall energy consumption profile. The DOE wants 20 percent of the nation’s electricity coming from wind by 2030.
California’s standard is 33 percent. With continued talks about Wyoming wind being shipped to California, the portfolio standard is destined to play an even more important role in the future of the Wyoming wind industry.
The industry can survive without the credit, but not without states’ renewable portfolio standards, Drain said.
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