Wind energy and the future of the Production Tax Credit
What is the Production Tax Credit?
The Production Tax Credit (PTC) provides a tax credit for each kilowatt-hour of wind power produced by utility-scale wind turbines and is applicable for the first 10 years of electricity production. It was created under the Energy Policy Act of 1992 and is set to expire on December 31, 2012. Critics of the PTC feel that the wind industry is stable enough to survive without subsidies, while PTC supporters identify the array of subsidies available to the more-than-stable fossil fuel industry. Supporters fear the credit’s expiration will create job losses and lead to higher project, electricity and insurance costs.
How does it affect the wind industry?
According to the American Wind Energy Association (AWEA), many in the wind industry are already blaming Congressional inaction on the PTC extension for job losses in virtually all areas of the industry. Several major companies, including Siemens and Vestas, have already slowed production, reduced employee count or halted development, while lenders and financial institutions are hesitant to provide capital. There are currently about 75,000 workers in the U.S. wind industry and AWEA estimates that the PTC expiration will lead to over 37,000 job losses by 2013. Texas and the Midwest, already struggling with drought-related revenue losses, are the biggest generators of wind energy and would likely be hit the hardest by layoffs.
What is the future of the PTC?
The bipartisan Senate Finance Committee passed legislation at the beginning of August to extend the PTC and the Investment Tax Credit (ITC), the PTC’s sister tax credit currently set to expire in 2016. The legislation has yet to pass through the full Senate and the House of Representatives, however. While more than 81% of all U.S. wind capacity is located in districts represented by Republicans, many conservatives are reluctant to support the credit in the wake of Solyndra and other government-backed alternative energy companies going bankrupt after receiving hundreds of millions of dollars from the government’s $20 billion stimulus package. The tax credit extension has also become a divisive election issue. Mitt Romney would allow the PTC to lapse, citing the need for more competition via deregulation and an open market for all energy resources. President Barack Obama supports the extension, calling it a top priority for stimulating energy advances and saving thousands of American jobs.
Congress recently adjourned until November 15th, meaning that the fate of the PTC hinges largely on the outcome of the 2012 election. According to a U.S. Department of Energy (DOE) report released by the Bush administration in 2008, the wind industry is on track to produce 20% of America’s electricity by 2030. Thirty-eight states already have utility-scale wind turbines in place and the American wind industry could support approximately 500,000 jobs in the next decade. A more recent US DOE report shows that the U.S. was second only to China in new wind power installations last year. While these statistics paint a rosy outlook, AWEA says that support from Congress via a long-term tax policy is needed to provide the stability and market consistency necessary for continued growth.
About the Author
Molly Lovelette is an Assistant Vice President at William Gallagher Associates (WGA) in the Property and Casualty Group, with a specialized focus in energy and construction policies. She serves the day-to-day needs of numerous energy clients, including independent power producers, owner-operators and manufacturers in the wind, solar, landfill gas, waste-to-energy and fossil fuel industries.