Study argues PTC unneeded, acknowledges short-term contraction likely
The report from the American Energy Alliance does little to contradict the gloomy scenario of lost jobs and sharply reduced development that wind industry backers see on the immediate horizon without an extension of the tax credit, and it was funded by a fossil-fuel-industry-backed organization that opposes even the state-level incentives that undergird wind’s future.
The report, “Removing Big Wind’s ‘Training Wheels,’” essentially argues that wind has grown too fast in recent years and is due for a contraction in the near term that will not inhibit long-term growth in the industry.
“Now is the time to allow the federal wind PTC to expire since it is clearly no longer needed to encourage rational wind generation development and, in fact, disproportionately favors wind over other domestic resources like natural gas and even other renewables,” the report concludes.
Without an extension to the wind production tax credit (PTC), which is scheduled to expire Dec. 31, construction of new wind farms is projected to fall precipitously next year, and tens of thousands of jobs will be lost, according to estimates from the wind industry and independent analysts.
“The simple fact is if the PTC goes away there will be virtually no installations next year,” said Amy Grace, North American wind analyst with Bloomberg New Energy Finance.
AEA’s study does not directly contradict that argument, instead focusing on the industry’s prospects through 2030, a period over which the report says wind generation will continue to grow because of renewable portfolio standards in place in 30 states and the District of Columbia. If wind is used to meet all existing RPS targets, AEA’s study projects installed wind capacity will reach 127,000 MW by 2030, more than double its current level.
The U.S. wind industry has grown dramatically. In just the last four years, total installed capacity has doubled from 25,000 MW to more than 50,000 MW. This year, independent analysts are projecting a record year with about 13,000 MW expected to be installed.
The trajectory of recent years was aided by a consistent availability of the PTC as well as additional clean energy incentives provided in the 2009 stimulus law, but analysts agree that cannot be maintained indefinitely.
The question for wind industry supporters and critics alike is whether the federal government can or should play a role in helping to soften the blow to workers in the industry as that growth trajectory levels out over the next few years.
AEA says it shouldn’t.
The near-term contraction being faced by the industry can be blamed on several factors, including reduced electricity demand driven by the recession and low natural gas prices that make it more difficult for wind projects to compete.
AEA argues that federal taxpayers should not be on the hook to continue propping up the industry with the PTC, which provides developers $22 for every megawatt-hour generated, when the market already has more wind power than there is demand for. The modified one-year extension to the PTC backed by the Senate Finance Committee would cost taxpayers about $12 billion over the next decade, according to a report from the Joint Committee on Taxation.
“This is an overall market correction that is occurring at this time,” which just happens to coincide with the pending PTC expiration, said David Dismukes, of the Center for Energy Studies at Louisiana State University, the report’s author.
The AEA report projects that about 6,000 MW of new wind would be installed by 2015 without the tax credit but estimates total installed wind capacity would exceed 127,000 MW by 2030 if used to meet existing state-level targets.
Even with an extension to the PTC, growth will slow in the wind industry, although not by as much. Bloomberg New Energy Finance, which analyzes investment in clean energy, projected that a three-year PTC extension would lead to about 18,000 MW of new wind build by 2015, according to an August report.
Wind industry supporters have focused on the near-term effects from allowing the PTC to expire. Thousands of workers across the country already have been laid off in recent months, as virtually no orders are being placed for next year. The American Wind Energy Association says job losses will reach 37,000 — more than half the workers employed in the industry — by next year without a PTC renewal.
“If you want to prevent that job loss, then you extend it for another year,” said Grace, the Bloomberg analyst. But “eventually the industry will have to correct.”
Grace said the combination of near-term oversupply, low gas prices and RPS targets that largely are met would make it difficult for the industry to thrive without the PTC over the next few years. But she said that RPS demand is projected to spike around 2017 and that gas prices are expected to rise from their current low range of $2 to $3 per thousand cubic feet to $5 per Mcf by 2015. So phasing out the credit over that period would allow the industry to better adjust to a subsidy-free environment with fewer layoffs in the interim, she said.
Even the AEA paper suggests the wind industry is “ready to be weaned from” the PTC. Dismukes said phasing out the credit may make sense, but he questioned whether the industry could be trusted to go along with such an approach and not continue asking for an extension at the end of a phaseout period.
Mark Muro, a senior fellow at the Brookings Institution who has researched long-term policies to support renewable energy, says the AEA study offers an argument that it may be time to move on from the PTC, as long as it is eliminated gradually rather than disappearing immediately next year.
“Seems like the range [of a phaseout] is between two to five years being discussed,” Muro said. “So I took most of it as reaffirming the success of the policies that we’ve had, by and large, and suggesting and affirming the readiness to declare victory and phase out the subsidy.”
The idea of phasing out the PTC over a number of years has been gaining traction among some wind developers and on Capitol Hill, although the industry as a whole has yet to coalesce around a specific phaseout approach. AWEA has said it is open to discussing a phaseout in the context of comprehensive tax reform next year and continues to push for an immediate short-term extension before the existing credit expires.
“AWEA has not reviewed the report in detail yet, but it’s not news to us what AEA and their sponsors want, and there can be no disputing the immediate threat of losing 37,000 American jobs and the damage that would cause to this new manufacturing sector with nearly 500 factories in 44 states,” said Ellen Carey, an AWEA spokeswoman.
Carey said the PTC sparks $15 billion in annual private investment and pointed to research from NextEra Energy Resources arguing that the PTC more than pays for itself through federal, state and local taxes paid by wind developers.
AEA is the political arm of the fossil-fuel-industry-supported think tank Institute for Energy Research and has been involved in a variety of efforts this year aimed at defeating the PTC. While the new report argues that the PTC is redundant because of state-level RPS targets, AEA would like to see those defeated, too.
“We don’t agree with that, but it’s there,” said Benjamin Cole, an AEA spokesman, of the state-level requirements.
“The question right now is what shall be the federal government’s role in supporting the wind industry,” he added. “And we don’t think the federal government has a role.”