How Extending Tax Credits Affect the Wind Industry, Zpryme Reports

By Megan Dean, Sr. Research Analyst, Zpryme

One issue that has been intensely debated in the Presidential election recently is the expiration or extension of wind energy production tax credits. Opponents of extending the tax credits include Presidential hopeful Mitt Romney, and many Republican congressmen have removed their support for the credit, following his example.

Democrats, on the other hand, support President Barack Obama’s plan to extend the tax credits to support the expanding industry. No matter one’s political affiliation, the decision to let the tax credits expire or extend them has an enormous effect on the future of the wind industry. 

Republicans have rallied behind Mitt Romney’s claims that wind energy is an unreliable and unprofitable industry. Opponents of extending the tax credits claim that they have been in place for 20 years without success. In addition, opponents claim that wind energy creates fewer jobs than other industries such as coal and oil. Romney also states that it is time for wind to stand on its own without government assistance. As the political discussions heat up over governmental tax credits for wind, party lines are becoming more drawn and polarized with less cooperation between political parties. For the time being this gridlock is unlikely to be resolved before the November election, as passing several steps is necessary in the political arena before proposals are approved. In the meantime, wind manufacturers are hurrying to complete current projects before December 31, because only completed projects will receive the production tax credit for 2012. In the near term, that will increase wind production for 2013 and beyond. However, it is also likely to stall further deployment until the issue is resolved. 

President Obama has been very outspoken about his support for extending the production tax credit for wind energy, a sentiment supported by many Democrats. In fact, the president has spoken in several states that have wind facilities and revealed his support for the field. There are several reasons Obama supports the PTC for wind. First, wind energy is a rapidly growing field, and it is predicted it will be self-sufficient (and not need the production tax credit) in 2016, just 4 years from now, as long as the PTC continues during that time. In fact, wind generation increased 27% over the last year, allowing wind to be the most competitive of all renewable energy sources, excluding hydro power. In 4 years, wind energy will reach the point of grid parity, where wind energy will be cost competitive with traditional energy generation. Renewing the production tax credit would create over 50,000 jobs during that time and help meet the President’s goal of 80% renewable energy generation by 2025. The industry currently employs over 75,000 and this addition would raise the number to 130,000 new clean energy jobs, not including indirect jobs, such as transportation. In addition, extending the credits would reduce dependence on foreign oil, reduce the price of oil and gas, and create American jobs, instead of shipping jobs overseas. Finally, historical evidence shows a $5 billion governmental investment creates $17 billion in private sector investments benefiting both the industry and the economy. 

However, the economic uncertainty of the industry has already caused problems, as plans have changed from long-term development to short-term completion. Currently construction in 2013 is expected to decrease to 1,500 MW if credits are not renewed. Even if the policy is approved, 750mw will be lost because of the time that is required to plan and secure the resources for new construction, as well as lease expiration clauses. Turbine and development firms have begun layoffs due to already reduced demand. The American Wind Association estimates that 37,000 jobs will be lost, resulting in only 32,000 direct positions in the industry, a 56% decrease. In addition, turbine demand is forecasted to decrease 80% in the United States. Turbine firms have begun looking for customers in Canada, Mexico, and Latin America to compensate for the decrease in demand. Congress has allowed the tax credits to expire 3 times in the last 20 years- in 2000, 2002, and 2004. Every time the result has been substantial growth rate reduction, significant job loss, delayed developments, and uncertainty in profitability. Energy installations decreased from 1670mw to 397mw, resulting in decreased number of installations in 2004. Each time installations fell over 75%. In 2000, demand decreased 93%. In 2002, demand decreased 73%, and in 2004, demand decreased 77%. Clearly, reducing the PTC will reduce jobs, reduce wind installations, and reduce demand for the sustainable energy source. 

Although party lines have been drawn on the issue of extending or lapsing the PTC on wind energy, the issue is not as simple as black and white. The industry has not met the goals of self-sufficiency as quickly as predicted. However, the lapses in the past created an unpredictable growth pattern with significant stalls. Each lapse resulted in a reduction of jobs, reduction of demand, and reduction of installations. It is forecasted that in just 4 years, the wind energy industry will be cost competitive with traditional oil and gas, making the PTC unnecessary. However, removing it would extend this time significantly. What is clear is that an agreement must be reached soon to allow further development of the industry and to benefit the country.

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