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Debate heats up over Wind Production Tax Credit

By Jack Keough

The debate over whether or not the Wind Production Tax Credit should be extended is heating up as thousands of workers in the wind industry have been laid off with many more on the horizon. And the decision may not be made until after the presidential election in November.

The production tax credit, which provides 2.2 cents in tax relief per kilowatt hour generated, is set to expire at the end of this year. President Obama is in favor of extending the tax credit while his Republican challenger, former Mass. Gov. Mitt Romney opposes the extension.

Due to the uncertainty and a drop off in orders, wind plants have been closed and layoffs have occurred in Pennsylvania, Kansas, Iowa, Florida, Nebraska, Colorado, Texas and Oklahoma. One estimate is that 37,000 jobs will be lost on the first quarter of 2013 if the tax credit is not extended.

Most recently, Siemens Power laid off more than 600 workers at plants in three states. The company blamed the possible expiration of the credits as well as a decrease in orders.

Each side-those supporting the extension and those against-has presented a varying set of statistics to back up their claims.

The American Wind Energy Association says that in 2011 wind turbines generated 2.9% of all electricity generated in the United States — up to 20% of electricity in both Iowa and South Dakota. If permitted to continue development, wind could generate 20% of the nation’s electricity by 2030, providing about 500,000 jobs. In the last five years, wind energy made up 35% of all new U.S. power generation capacity, according to the association.

 The association claims the tax credit is an effective tool to keep electricity rates low and encourage development of proven renewable energy projects. Equipped with the PTC, the wind industry has been able to lower the cost of wind power by more than 90%, provide power to the equivalent of over 12 million American homes, and foster economic development in all 50 states.

With the support of the PTC, the U.S. wind energy industry has achieved impressive numbers, the association claims, noting that there are now nearly 500 facilities across 44 states manufacturing for the wind energy industry. The group says that 60% of a wind turbines value is now produced here in America, compared to 25% prior to 2005.

They also asserted that there has been a 90% drop in the price of wind power since 1980, benefiting utilities and consumers.

On the other side, The NorthBridge Group, an economic and strategic consulting group serving the electric and natural gas industries, recently issued a report arguing that the credit should be allowed to expire. The consulting firm says the tax credit “destabilizes” the electricity market and will lead to a less reliable electrical grid in the future.

“Our findings lead us to conclude that the PTC should be allowed to expire under current law,” says the report by the NorthBridge Group.

“As a matter of both economics and public policy, no government production tax subsidy should ever be so large that it creates an incentive for a business to actually pay customers to take its product,” the report continues.

Wind often doesn’t produce enough power during times of the day when electrical demand is highest, but overproduces at times of the day when demand is lowest, researchers maintain.

The subsidy encourages wind producers to keep producing at high levels when power demand is low because they can still make money due to the federal subsidy they earn when they generate.

“The failure of wind generators to curtail output when wholesale prices approach zero has both short term and long term negative consequences,” the study notes. “In the short term, the failure of wind producers to curtail output makes it more difficult for system operators to maintain

The federal Wind Production Tax Credit was enacted in 1992 to get the wind industry off the ground. Congress has renewed the credit seven times and let it expire three times since it was enacted, and now lawmakers on both sides of the aisle are debating the merits of another extension.

While the tax credit extension seems less likely in the Republican-controlled House, Democrat Senate Majority Leader Harry Reid of Nevada told the Hill newspaper he was “very confident” that the tax credit extension would pass his chamber as several key Republicans sponsored legislation extending the tax credit, including Chuck Grassley of Iowa, Scott Brown of Massachusetts, and Dean Heller of Nevada.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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