Vestas Cuts US Jobs On Tax Credit Extension Doubts

by Leroy Baker, Tax-News.com, New York

16 October 2012

Largely due to uncertainty over a possible extension of the Production Tax Credit (PTC) at the end of 2012, Vestas, the leading wind turbine manufacturer, is to reduce its workforce in the United States significantly.

Although Vestas added many jobs in service and construction to meet previously-high customer and market demands earlier this year, it has disclosed that it is now reducing its workforce in the US, and Canada, by about 20% in the second half of 2012 - from more than 3,400 employees to about 2,600. This includes workforce reductions in manufacturing, sales, service, supply chain, and research and development.

“Vestas has experienced its busiest year ever in the US and Canada by supplying wind turbines to more than 20 new wind power projects,” said Martha Wyrsch, President of Vestas-American Wind Technology, Inc. “However, the US wind industry has slowed, largely due to the uncertainty surrounding the federal PTC extension at the end of 2012.”

As an example of the need for its action on jobs, Vestas confirmed that the uncertainty with the PTC has led to a reduction in turbine orders for 2013 in the US market. Consequently, it has recently reduced its manufacturing workforce at two Colorado blade factories.

The statement by Vestas follows a report issued by the US Energy Department in August this year, highlighting the strong growth that had been seen in the wind energy market in 2011, and underscoring the importance of continued clean energy tax credits to ensure that the manufacturing and jobs associated with the industry remain in the country.

According to the report, wind power represented 32% of all new electricity capacity additions in the country last year and accounting for USD14bn in new investment, while the percentage of wind equipment made in the US also increased markedly, with nearly 70% of the equipment installed at US wind farms in 2011 – including wind turbines and components, such as towers, blades, gears and generators - being from domestic manufacturers, doubling from only 35% in 2005.

However, despite recent technical and infrastructure improvements and continued growth in the market in 2012, the report had already noted that 2013 would see a dramatic slowing of domestic wind energy deployment due in part to the expiration of federal renewable energy tax incentives, with the wind industry projecting that 37,000 jobs could be lost if the PTC is allowed to expire.

First established by the Energy Policy Act of 1992, the PTC provides a 10-year, inflation-adjusted per-kilowatt-hour tax credit. The historical importance of the PTC to the US wind power industry is illustrated by the pronounced lulls in wind power capacity additions in the three years (2000, 2002 and 2004) in which the PTC lapsed, as well as the increased development activity often seen during the year in which the PTC is otherwise scheduled to expire.

Wind power projects are currently eligible for the PTC only if they were under construction by the end of 2011, applied for a grant by October 1 this year and will achieve commercial operations by the end of 2012, when the credit expires.

While there have been calls for the tax credit to be renewed, little has been expected to be resolved prior to the Presidential elections next month, while its renewal thereafter could also be caught up in the movement for all US tax incentives to be re-examined in the light of the country’s federal deficit and proposed structural corporate tax reforms.