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US Debates Tax Support For Wind Energy

by Mike Godfrey, Tax-News.com, Washington

06 November 2012


A new report released by the American Energy Alliance (AEA) has concluded that wind power generation is now a mature industry in the United States, whose recent growth has rendered the federal Production Tax Credit (PTC) unnecessary, and it should therefore be allowed to expire at the end of this year.

The AEA, which is part-funded by non-renewable fuel businesses, commissioned the study, “Removing Big Wind’s Training Wheels: The Case for Ending the Federal Production Tax Credit,” from David Dismukes, associate director and professor at the Louisiana State University Center for Energy Studies.

It documents what it calls “the explosive growth of wind generation (which has increased five-fold since 2006 to 50,000 megawatts of electricity capacity in the US) as well as the favourable outlook for future wind generation development”. It is said that it will continue to grow even without the renewal of the PTC, and that the latter “only serves to tip the scale in favour of a well-established industry, giving wind a politically-determined advantage over other types of generation”.

First established by the Energy Policy Act of 1992, the PTC provides a 10-year, inflation-adjusted per-kilowatt-hour tax credit. It has been extended seven times and is scheduled to expire under current law on December 31, 2012. 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.

There have been calls for the tax credit to be further renewed both from the industry and in Congress, particularly from lawmakers in the major wind-producing states, but many in the Republican Party are against green energy programmes and the Republican presidential candidate Mitt Romney is also opposing the PTC’s extension. The Joint Committee on Taxation has estimated that a one-year extension would cost taxpayers USD12.1bn.

“The real issue is that wind is a mature industry... and is no longer in need of training wheels,” said Dismukes. “The PTC is a costly and inefficient subsidy that is clearly no longer necessary.”

“The government needs to stop... establishing policies that pick winners and losers in the energy marketplace. The wind PTC has run its course, and taxpayers must no longer be forced to subsidize a well-established wind industry that offers no substantive proposal for a phase-out of decades-old energy welfare,” added AEA President Thomas Pyle.

The report notes that Standards & Poor’s recently estimated that new renewable energy investment opportunities could be worth USD150bn over the next 10 years, even if the PTC is not renewed, driven in large part by opportunities in wind energy development. S&P also suggested that the tax credit is “an inefficient and expensive means of supporting wind generation that... wastes limited fiscal resources by over-subsidizing many projects and driving over-development”.

The report also highlights forecasts from the US Energy Department in August this year, which found that, even if the PTC and other incentives are eliminated, renewable generation will still be on track to rise from 500bn kilowatt hours in 2011 to approximately 750bn kilowatt hours by 2035, a 50% increase in wind generation.

However, on the other hand, the wind power sector has pointed out that the same study by the Energy Department also appeared to underscore the importance of continuing the PTC to ensure that the manufacturing and jobs associated with the industry remain in the US.

According to that study, wind power represented 32% of all new electricity capacity additions in the country last year and accounted 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 being from domestic manufacturers, doubling from only 35% in 2005.

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

TAGS: environment | tax | business | energy | law | tax credits | manufacturing | legislation | United States

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