Oklahoma’s burgeoning wind energy capacity was accompanied by the swelling cost of the state subsidies that encouraged the industry’s growth.
That accommodating competitive environment seems to be changing rapidly. For turbines that come on line after July 1, a key subsidy – the zero-emissions facilities tax credit – won’t be available. Its disappearance has caused some in the wind industry to tell the World that Oklahoma is creating an “uncertain” competitive and regulatory climate.
Yet, the industry itself agreed that the zero emission tax incentives were no longer necessary to spur private investment. They just thought the sunset would come later.
EDP Renewables North America has two wind farms in Oklahoma and a third under construction. The set of incentives was part of the equation that attracted EDPR to Oklahoma, the company said.
“Under Governor (Frank) Keating, there was a pretty generous set of tax incentives that were afforded to the wind industry,” said Vanessa Tutos, government affairs director for EDPR.
“And so, as we analyze our project economics, of course we are active in many states across the country, we look to see where we get the biggest bang for our buck. And Oklahoma was one because of the zero emissions tax credit and, until 2015, the ad valorem exemption for the first five years made a lot of economic sense.”
House Bill 2298, which Gov. Mary Fallin signed into law last month, set the expiration date at July 1 rather than allowing it to continue until 2021. The state, according to the American Wind Energy Association, a trade group, is third in wind power generated in country with more than 6,600 megawatts of capacity and is responsible for 25 percent of the energy generated in state. That’s up from about 176 megawatts in 2003, when the incentive was put in place, according to the 2016 Oklahoma Department of Commerce Tax Incentive Evaluation report.
No new projects
Even though the production tax credit for zero emission facilities sunsets July 1, Oklahoma will still be paying for it for years to come. It’s a 10-year incentive and the projected cost is expected to be $67.3 million in 2017, $78.5 million in 2018 and could be as high as $87.6 million in 2020, the report shows.
State officials predict the bill will save $500 million over the next 10 years.
The industry overall recognized that the tax credit was becoming untenable for the state, Tutos said, but EDPR and the industry expected the sunset for the zero emissions tax credit to be later in the year.
“The way our construction process works, we will start construction after the winter-early spring and that construction process will be ongoing through the summer until the fall,” said Tutos. “I can’t think of any project that I’m aware of that had a plan to be built in 2017, financed with the anticipation of the zero-emissions tax credit being in place would be able to stop at the point where the decision was made that July 1 would be the cutoff.”
EDPR has a wind farm under construction in Pocasset, just west of Norman. “For those of us that had projects under construction, we’re kind of left holding the bag, and that’s several million dollars hit to us,” said Tutos.
It hasn’t slowed the Pocasset project, however.
“That train has already left the station. We had the turbines on their way, the BOB contract was signed. It wouldn’t be an easy thing to walk back,” said Tutos. “Whereas for the future projects, we’ve sort of made a strategic decision that we’re not developing anything else in Oklahoma.”
She said the company may acquire a site but doing any greenfield work would be out of the question for the moment in an uncertain business climate.
Industry going elsewhere
“The early elimination of the Zero Emission Tax Credit will certainly impact the economics of projects under development, reducing Oklahoma’s competitiveness among its neighboring states,” said Cat Strumlauf, public affairs associate for Apex Clean Energy. “This unexpected move by the state Legislature has created an environment of uncertainty that is making potential investors in the state nervous.
“Drastically altering the tax structure for wind farms has unfairly changed the rules in the middle of the game. These changes will likely impact Oklahoma’s ability to attract future investment in clean energy industries,” she said.
Steady winds that make turbines economical isn’t exclusive to Oklahoma, a U.S. Department of Energy map shows. There’s a wide swath of the Midwest that sees regular speeds of above 7.5 meters per second – or more than 16 miles per hour.
It extends from West Texas up the Plains to the Canadian border.
At the moment, there continues to be forceful resistance to subsidizing wind in Oklahoma. The Windfall Coalition, a group of oil and gas interests, has aggressively pursued measures against wind subsidies that they say put natural gas at a disadvantage.
Keating, the governor who officially made the zero-emissions tax credit the law of the land, has become one of the faces for the Windfall Coalition.
“I’m shocked and dismayed that taxpayer money has been spent so recklessly and at the cost of funding Oklahoma’s education system, which we know continues to be at risk,” Keating wrote in a Tulsa World editorial.
“Because of power purchase agreements with other states, people outside of Oklahoma enjoy the majority of this discounted power, thanks to the subsidies we fund.”
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