Energy industry fears US tax credit won’t be renewed

April 5, 2012 by  
Filed under Green Energy News

By 

Dan Voorhis

M cCLATCHY NEWSPAPERS

Thursday April 5, 2012 5:24 AM

WICHITA, Kan. — BP Wind Energy certainly was getting its money’s worth recently as a steady 30-mph wind spun the 148-foot-long turbine blades at the Flat Ridge 1 wind farm at a surprisingly fast clip.

The 100-megawatt wind farm north of Medicine Lodge, Kan., has spawned an under-construction extension, Flat Ridge 2, that is four times bigger. It’s a key reason why Kansas is the nation’s top destination for wind-farm construction this year; the state’s power-generating capacity is nearly doubling to more than 2,600 megawatts.

But any prospect of a Flat Ridge 3 looks dim, as Congress appears unwilling to renew a federal wind-power tax credit that expires on Dec. 31.

An industry executive said that losing the subsidy would kill almost all planned construction because the power would be too expensive. One wind-energy manufacturer in Colorado plans large layoffs if the subsidy isn’t renewed.

Wind farms built this year are unaffected and will continue to receive the tax break.

It’s a big potential blow to the vision of Kansas’ Republican governor, Sam Brownback, for a vibrant wind industry in the state, in the form of the new wind farms and manufacturers such as a Siemens plant in Hutchinson, Kan. A lot of time and money has been spent preparing the state for rapid growth.

There’s a lot at stake for Kansas, said state Secretary of Commerce Pat George. And, he said, it’s inevitable that wind power is going to be needed, eventually.

“There is a diminishing amount of coal and gas. When that will be, I don’t know, but it’s coming,” he said. “This helps our nation to be less dependent on other forms of energy.”

The Production Tax Credit was approved most recently in 2009 as part of President Barack Obama’s economic-stimulus effort, although it has largely been in effect since 1992. It provides 2.2 cents per kilowatt hour for utility-scale wind-power producers.

With the subsidy, said John Graham, CEO of BP Wind Energy, wind-generated electricity is competitive with the least-expensive common alternatives.

The cost of wind generation has fallen significantly as wind turbines and wind farms have gotten bigger, manufacturing moves from Europe to the U.S. and the technology improves. The cost is close to being competitive, but it is still a few years away, Graham said.

The tax credit, Graham said, costs the government $3.5 billion a year and attracts $15 billion to $20 billion in investment. Sixty percent of wind-energy components now are made in the United States. “We think it’s a very good return,” he said.

The wind-power industry has launched a frenzy of production that Matt Kaplan of IHS Emerging Energy Research in Cambridge, Mass., estimates will add 12 gigawatts of generating capacity, about 20 percent more than the peak year.

If the tax credit isn’t renewed for 2013, Kaplan estimates construction of 1.5 to 2 gigawatts — about an 85 percent decline.

It’s happened before. When Congress did not renew the tax credit in 1999, 2001 and 2003, new construction plummeted between 73 and 93 percent the following year.

“The industry is at the edge of a cliff right now,” Kaplan said.

Graham said there might be instances in which wind farms would make sense without the tax credit, but they will be few.

Although wind-energy prices have come down, the shale-gas drilling boom has dropped the price of natural gas below $2.50 per thousand cubic feet. Coal is also a natural low-cost competitor, Kaplan said, but there are enough environmental regulations to slow the opening of coal-fired power plants.

“If gas were to return to $6 or $8 per thousand cubic feet, wind would be competitive,” he said.

The disappearance of the tax credit would be a serious blow to the industry, Kaplan said. Even if market conditions change in five years, and the price of natural gas rises in the U.S., the industry couldn’t afford to let its plants and infrastructure sit idle waiting for the market to improve. There is still market growth abroad, particularly in China, he said, so the big companies wouldn’t disappear, but their U.S. capacity would suffer.

Denmark-based Vestas has warned that it will lay off 1,600 workers at its Colorado factories if the tax credit is not renewed. Japan-based Mitsubishi Heavy Industries has scrapped its plan for a $100 million plant in Arkansas. The American Wind Energy Association said up to 37,000 jobs would be lost without the tax credit.

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