The expiration of the production tax credit (PTC) at the end of this year constitutes a major obstacle for U.S. wind energy. If the PTC is not extended by Congress, tens of thousands of jobs will be lost and economic development would be stymied. As stated in a report from Ernst and Young, “Failure to extend this incentive could stop wind development in its tracks.”
The federal renewable electricity PTC is a per-kilowatt-hour tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. Originally enacted in 1992, the PTC has been renewed and expanded numerous times. The federal tax credit gives wind power generators 2.2 cents for every kilowatt-hour of energy produced, but it is slated to expire at the end of 2012 unless lawmakers approve a renewal.
The PTC has fueled the proliferation of wind power installations across the U.S. Since 2005, the PTC has helped to generate 47,000 megawatts of new capacity. A total of 35 percent of the new electrical generation capacity has been developed due to the PTC over the past five years. This activity is worth $60 billion in private investment.
The best wind farms in the world already produce power as economically as coal, gas and nuclear generators. In terms of cost efficiency, rising fuel prices mean that wind power could achieve parity by 2016, but this won’t happen without the PTC.
According to the U.S. Energy Information Administration's (EIA) Annual Energy Outlook 2012, wind is one of the dominant players behind increasing U.S. renewable energy generation. Wind power now generates 3 percent of America's electricity. Forecasts predict that wind generation will almost double between 2010 and 2035, but the growth would slow substantially if the PTC were allowed to expire.
“If Congress chooses not to renew, there is no hope for the wind industry next year,” John Graham, a BP executive, said of the tax credit. “Without it, U.S. wind projects aren't viable.” Failure to extend the PTC would result in the loss of an estimated 40,000 jobs in the wind industry. Members of the industry supply chain are already being affected due to the uncertainty. The current PTC uncertainty has begun to cause layoffs and in the absence of an extension, further job losses and even plant closings will keep accelerating.
Despite economic headwinds, the PTC has helped the US wind market grow stronger. In 2011 the wind market improved upon the 5 GW posted in 2010. More than 7 GW of wind capacity is expected to be installed in the US in 2012 as developers of wind energy rush to complete projects before the expiration of the PTC at the end of this year. Although the wind market will experience an acceleration of installations, especially during Q1 and Q2 of 2012, if the PTC is not extended, a major stoppage throughout the entire US wind industry can be anticipated in the second half of 2012.
Although bipartisan contingents in both the House and Senate are calling for action, the fight over the extension of the PTC continues on Capitol Hill. U.S. Sens. Mark Udall (D-Colo.), Jerry Moran (R-Kan.) and 10 colleagues from both parties wrote to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) urging swift action on extension of the wind energy production tax credit (PTC).
In addition to Udall and Moran, the Senate letter was signed by Sens. Michael Bennet (D-Colo.), John Boozman (R-Ark.), Tom Harkin (D-Iowa), Chuck Grassley (R-Iowa), Tim Johnson (D-S.D.), John Hoeven (R-N.D.), John Kerry (D-Mass.), Scott Brown (R-Mass.), John Thune (R-S.D.), and Jon Tester (D-Mont.).
As the Senators explain in their letter,
“An extension of the wind production tax credit should provide for some long-term stability while setting forth a path for how the wind industry can move towards a market-based system. While it is clear that the wind industry currently requires tax incentives like the production tax credit to compete, Congress needs to provide the wind industry with the stability and predictability to plan for the future.”
Four U.S. Representatives from the Illinois congressional delegation signed a letter to the leadership of the House and Senate calling for “a short-term Production Tax Credit extension for wind energy at the earliest opportunity in the first quarter of 2012.”
A House bill seeking to extend the PTC has 72 co-sponsors, including 18 Republicans. The bipartisan Governors’ Wind Energy Coalition, (including 23 Republican and Democratic Governors from across the U.S.), and the Western Governors’ Association also support the extension. This legislation has received the endorsement of a broad coalition of more than 370 members, including the National Association of Manufacturers, the American Farm Bureau Federation and the Edison Electric Institute. A PTC extension even has the support of the environmentally indifferent U.S. Chamber of Commerce and staunch Republicans like Governors Terry Branstad of Iowa and Sam Brownback of Kansas.
Forbes reports that a total of 15 major companies wrote to Congressional leaders urging extension of the PTC. These companies represent some of America’s biggest brands and largest purchasers of wind energy. The list includes Starbucks, Staples, Nike, Levi Strauss & Co., Campbell Soup Co. and Yahoo!. As stated in the letter, “The PTC has enabled the wind industry to slash wind energy costs – 90 percent since 1980 – a big reason why companies like ours are buying increasing amounts of wind energy.” Wind energy is increasingly attractive because it helps companies to manage costs and reduce their emissions profile while being less reliant on the price and supply volatility of foreign oil. Unlike fossil fuels, wind can offer 20-30 year fixed prices.
Opposition comes from conservatives who oppose all federal investments in energy production including members of Congress who are affiliated with the Tea Party.
In another Forbes article, Denise Bode, CEO of the American Wind Power Association wrote that wind energy is “one of the fastest growing new sources of US manufacturing jobs,” she said, “the PTC has driven tremendous growth in wind’s manufacturing sector.” The U.S. now has over 400 manufacturing facilities in 43 states involved in wind turbine manufacturing. That represents a 12-fold increase in domestic manufacturing over the last six years.
According to Bode, American wind power accounts for 75,000 American jobs, and can grow to almost 100,000 jobs four years from now. According to a Bush Administration study, wind can support 500,000 American jobs in less than 20 years. But these jobs won’t materialize in the absence of the PTC.
Bode quotes economic studies, which have demonstrated that Congressional inaction on the PTC will eliminate 37,000 American jobs, close plants and forego billions of dollars in private investment.
“Wind energy is an American success story and the federal Production Tax Credit (PTC) for wind is driving this success. But we need Congress to extend the PTC and keep taxes stable and low on wind in order to keep this success story going,” Bode said.
The PTC enables wind energy to compete with the heavily subsidized fossil fuel industry. Failure to extend the PTC will cripple wind power’s competitiveness which will undermine the economy and kill one of the greatest job creation engines in the United States.