Should the US Wind Power Industry Lose its Training Wheels?

The US Production Tax Credit has been the lifeblood of the US’s wind energy industry for the last decade but congress may decide not to renew this subsidy. Is it time for this lifeline to be cut for good?
Published: Wed 05 Dec 2012

The future of wind power in the US hangs in the balance again as Congress considers re-approving the Production Tax Credit (PTC), a federal subsidy for renewable energy. The subsidy contributes 2.2 cents per kWh towards the wind energy industry which amounts to about US$1bn per year, according to the Guardian. Wind energy supporters describe the PTC as being a major driving force behind the wind energy industry’s growth over the last decade. Even President Obama has vowed to support the credit. However, some don’t agree.Critics of the PTC (including the fossil-fuel fundedAmerican Energy Alliance) say the PTC should be scrapped as the wind industry has had sufficient time to get off the ground. Mitt Romney, the Republican Party's nominee for the President of the US in the 2012 election, agrees as he describes it as a “stimulus boondoggle.” Some critics say that more subsidies would be throwing good money after bad. They say that if the industry isn’t economically viable by now without public money, it may never be.

The PTC is up for re-approval by Congress by the end of this year- PTC reaches its expiry date every one to three years. Already, the industry has been plagued with uncertainty and many have lost their jobs in anticipation of the Congress ruling. While this year was a successful one for the wind energy industry, experts in the industry say that projections for its growth in 2013 are not looking good. Michel DiCapua, a Bloomberg Energy Finance analyst, describes next year as a “crash year” for the wind industry. The dip next year is only the next iteration of a boom-bust cycle that has tormented the US wind industry for over a decade, explains The Guardian. The PTC has expired three times in the past, and the industry has consistently suffered as a result. Just the mere hint of a possible expiration sends the industry and its investors in to a state of panic. Industry leaders think it’s time to slowly let go of the PTC in order to break free of the aforementioned cycle and rather look forward to sustained long-term growth. Jacob Susman of OwnEnergy feels that the industry is ready to start phasing out the PTC. Andy Bowman of Austin-based wind installer Pioneer Green Energy, says that the PTC has never been more than a “piecemeal solution” and that its expiration casts a long shadow of uncertainty. He explains that by removing the PTC, there would be a “great deal more certainty.”

But, these could be brave or very unrealistic words for an industry that lacks maturity.  For instance, the renewables sector is already competing on a very unlevel playing ground as fossil fuel subsidies run about 13 times higher. This is according to a report What Would Jefferson Do? compiled by Nancy Pfund and Ben Healey. A number of groups, including the American Wind Energy Association and the Union of Concerned Scientists, are calling for the renewal of the PTC for the following reasons:

  • Natural gas is a more attractive option as prices are at an all-time low due to fracking
  • Upfront costs of wind power projects are still high
  • Utilities are not taking on new wind projects due to state-level standards that mandate how much renewable energy must be adopted

It seems that industry leaders will need to rely on an increase in natural gas prices, tightening of coal regulations, as well as even cheaper and more efficient wind turbine technology to lure investors. The industry is also calling for an energy policy that will see the long-term development of wind energy and is lobbying for higher targets for states’ renewables goals. This may give the wind industry the competitive edge it needs in order to bury the PTC once and for all.

Engerati Analysis

Renewable energy development is a critical part of the US’s energy mix as this will alleviate and eventually replace its heavy reliance on more traditional fossil fuel burning methods of electricity generation.  This will ensure the country’s energy security.

Many experts believe that after decades of subsidies, the wind industry is starting to reach maturity and will eventually operate independently of subsidies. Surely, by pulling the carpet from under the developing industry prematurely, billions in tax pay money will be wasted?

Sources                                

Deloitte-Energy independence and security: A reality check

Document Cloud-What Would Jefferson Do? [2011]                    

Technorati-Will Wind Energy Be The First Casualty of the Fiscal Cliff?

The Guardian-Will US wind power splutter out if Mitt Romney cuts its subsidy?