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Report: A Plea For Extending a Federal Tax Incentive for Wind Energy

Efforts to get Congress to extend a wind energy production tax credit before it expires at the end of 2012 have intensified, and the latest ammunition came in a form of a government report released Tuesday touting the jobs created by the wind energy industry and the growing reliance on wind energy to meet electricity demand.

The report, written by the Lawrence Berkeley National Laboratory, noted that the 32 percent of new electric power plants added in 2011 were wind farms that required $14 billion to install. Sixty-seven percent of the equipment that went into building turbines last year came from American factories.

The country added about 6.8 gigawatts of new wind energy generation capacities in 2011, up 31 percent from 2010. The country’s total wind energy generation capacity has hit 50 gigawatts, the report said. Wind energy now can meet over 10 percent of the electricity demands in six states, including Iowa, Colorado, Oregon, Minnesota, and North and South Dakota.

The wind energy’s growth also has been built on the federal energy production tax credit, which first became available in 1992 and has been extended many times. Wind energy producers can get an income tax credit of 2.2 cents per kilowatt-hour. The American Wind Energy Association has been lobbying hard to extend the production tax credit, which is set to end on Dec. 31 this year.

The trade group issued a press release last week listing layoffs at wind manufacturing and other service companies to underscore its assertion that more job losses will occur if the production tax credit disappears. In fact, it claims that nearly half of the 75,000 jobs that are currently available in the wind business could go away along with the tax credit. 

State mandates that utilities buy an increasing amount of renewable energy have driven the wind energy industry. California installed 921 megawatts of wind energy capacity in 2011, knocking Texas off the perch. California also is where the utilities must get 33 percent of their electricity from renewable sources by 2020. California’s three big utilities – Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric – have already met an earlier, 20 percent mandate in 2011.

Wind energy development isn’t a new field, and it’s managed to reduce both the cost of building wind farms and the price of wind electricity over the years to the point that they are lower than, say, solar energy. The cost of installing wind farms in 2011 reached an average of $2.1 per watt, which was $0.10 per watt less than the cost in 2010.

Although project development and construction costs have come down, the prices for wind power haven’t dropped as quickly. Average prices for electricity from a sample of 271 wind farms (20.2 GW total) reached 5.4 cents per kilowatt-hour, compared with a low point of 3.7 cents per kilowatt-hour in 2005 (80 projects with 4 GW). Price fluctuations for wind turbines and project construction costs are key reasons for the changes in wind power prices, though lower prices could show up much later after a drop in equipment and project costs.

Most of the wind farms built in 2011 involved power purchase agreements owners signed with utilities a few years before, so the wind energy prices for 2011 didn’t seem to correspond with falling turbine prices. But the power purchase agreements signed in 2011 did contain lower prices: They reached an average of 3.5 cents per kilowatt-hour, compared with 5.9 cents per kilowatt-hour for the power purchase agreements signed in 2010 and 7.2 cents per kilowatt-hour in 2009. 

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