The Wind Industry Gets to Draw Another Breath
In the last-minute tax maneuvering in Congress this week, wind power came out well.
Wind not only got an extension of its tax credit in the federal budget compromise, but the rules were also restructured: while the extension runs for only one year, the nature of the deadline has changed. Projects do not need to be finished and feeding electricity to the grid by next New Year’s Eve; construction only needs to be started.
That change could prove critical. The renewal comes so late – developers had lobbied all last year to avert a Dec. 31 expiration – that most wind developers had simply stopped work on projects that could not be finished by the end of 2012.
The process of getting a wind farm going, including studying the wind resource, negotiating a land lease or purchase, obtaining environmental and construction permits, signing a contract to sell the electricity to a utility, getting financing, ordering the equipment and then installing it, can easily take more than two years.
A Senate aide who was involved in the run-up to the yearlong extension by Congress said that approval on New Year’s Day could have been “like inviting somebody who is halfway around the world to lunch in an hour.”
And hard deadlines on completions tend to create industrial rush hours. For example, the number of trucks fitted out to carry giant blades is limited, and developers were worried about lacking access to them in critical weeks in the middle of last year. Right now, those trucks are idle with the decline in activity.
Meeting the deadline is crucial, because the aid is substantial. Wind developers can choose between a production tax credit, currently 2.2 cents per kilowatt-hour for the first 10 years of production, or an investment tax credit, which is a prompt payment of 30 percent of the construction cost.
Developers have projects in various early stages, and some of those will presumably now start up. On Wednesday, one opponent of wind power, John Droz Jr., said that when the expiration was pending last year, a number of projects were put on hold and “it will take them quite a while for them to get back up to speed, and some may not ever.” Still, state quotas for renewable energy will virtually guarantee some construction.
When the numbers for 2012 are in, the wind industry expects it to have been a record year, surpassing the 10 gigawatts installed in 2010; the total in 2012 may have reached 12 gigawatts. Construction could resume at roughly the same pace.
The numbers are huge for a young industry; the United States has only about 101 gigawatts of nuclear capacity, for example. But plants that are fueled by uranium, coal or natural gas obviously run more hours of the year than wind machines do; wind plants generally produce only 30 to 40 percent as much electricity as they would if they could run at full power all year long.
Long-term renewal would probably cost the Treasury around $12 billion over 10 years, although the wind industry insists that it will generate so much taxable activity that total tax revenues, including those at the state and local level, will exceed the tax expenditure.
The industry still faces substantial challenges, though, including the very low cost of the fossil fuel that wind means to displace (natural gas) and problems in integrating more and more wind plants. But industry experts say the wind sector could continue to draw in investment at the rate of the last few years, about $15.5 billion annually.
Some projects that simply were not ready to get under way in 2012 could do so in 2013. One of the companies hailing the extension of the tax breaks was Fishermen’s Energy, which is planning an offshore wind farm near Atlantic City in New Jersey. Onshore work will begin this year, said Rhonda Jackson, a spokeswoman, and offshore construction and completion are anticipated in 2014.