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Study says wind tax credit loss would cost US $28.2bn by 2016

A study commissioned by the American Wind Energy Association paints a bleak picture for the US wind industry if Congress does not act on a proposed four-year extension of the production tax credit (PTC) beyond 2012.

The study by Navigant Consulting estimates that the country will lose $28.2bn in cumulative economic activity through 2016 without the PTC in place.

The potential impact would be immediately felt as total wind-supported jobs would decline by nearly half from 78,000 to 41,000 in 2013, and total wind investment will fall by nearly two-thirds from $15.6bn in 2012 to $5.5bn.

Wind installations would average 2GW to 4GW annually through 2016 versus a projected 8GW in 2012, according to the study.

Should Congress approve a four-year extension, wind installations would total between 8GW and 10GW a year through 2016, while wind supported jobs will grow to 95,000 and total wind investment will increase to $16.3bn, it forecasts.

Navigant says its calculations show that a four-year extension could result in an 87% return on investment for US taxpayers over the life of wind projects. It would roughly cost a maximum $13.6bn, but result in $25.6bn in direct investment and tax revenue. That estimate excludes indirect and induced investment, which occurs from increased consumer activity resulting from the other forms of investment.

Navigant concludes that an absence of PTC would stall, or reverse, the US trend since 2005 of increasing domestic content for wind turbines, blades and towers, as some manufacturers would close and the remaining demand would likely be filled by foreign products.

Should the tax incentive be extended through 2016, domestic content for wind turbines would increase from 50% now to 61% in 2016, 55% to 63% for blades and 55% to 71% for towers, says Navigant.

AWEA and its members are focusing their lobbying efforts on the PTC, which lowers the tax rate on wind investments by $0.022/kWh for a project’s first decade in operation, as it has done the most to propel growth in US wind industry manufacturing capacity.

Since 2005, wind turbine components production has increased 12-fold to more than 400 facilities in 43 states.

In a conference call, executives from Siemens Wind Power, Winergy Drive Systems and Leeco, a supplier of plate steel, say that doubts over future of the PTC were already causing a drop in orders.

“With the uncertainty of the PTC extension, we are seeing the hesitation of our customers to make continued commitments for orders in late 2012 and 2013,” says Winergy chief executive Terry R. Royer. “An immediate extension is needed to support the investment we have made in our operations and secure the jobs that have been created.”

Kevin Hazel, an executive at Siemens, says without a PTC extension his company will need to take decisions in first quarter 2012 that will affect supply chain activity and jobs. “It could be a lot busier today,” he adds.

AWEA chief executive Denise Bode described PTC as a conventional “meat and potatoes” tax incentive that historically has obtained bipartisan support. She acknowledges that the wind sector survived previous lapses in the PTC, but argues this time much more is at stake for both the industry and country.

About one-third of new US power generating capacity has come from wind in recent years, according to the trade group.

Bode denies that the industry is seeking endless federal subsidies, a frequent charge leveled at the wind and solar sectors by their critics. “Wind energy is one of the most competitive energy sources – if we are allowed to finish the job,” she says. “We’re not asking for permanent support.”

Bode was circumspect when asked if Congress this month could pass a broader corporate payroll tax cut bill in which language could be inserted for a multi-year PTC extension. “It’s hard to say if one is moving,” she says.

AWEA executives made only passing reference to other federal incentives such as the Treasury 1603 cash grant and Energy Department loan guarantee programmes, which lawmakers have shown little desire to repeat in 2012.

The PTC is one of numerous energy and unrelated proposals awaiting action by a Congress with approval ratings in single digits. Lawmakers in both houses are held in such low regard by average Americans that President Barack Obama is blaming them for some of his administration’s shortcomings in the run up to his own reelection bid in November next year.

Long-time observers of Congress say the level of partisan bickering has reached a level that makes it difficult to forecast what energy-related legislation could pass this year or next.

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