Steve Leone, Associate Editor, RenewableEnergyWorld.com
July 31, 2012 | 5 Comments
New Hampshire, U.S.A. -- Colorado Senator Mark Udall is persistent by nature. He's a mountain climber who has scaled some of the world's most daunting peaks, from Mount McKinley in Alaska to Mount Aconcagua in the Andes. That dogged pursuit has served him well in his recent career spent navigating the perilous cliffs of Washington's Capitol Hill. And now he has at least one more mountain to climb — the seemingly intractable extension of the Production Tax Credit (PTC), the wind industry's defining subsidy and the financial tool that has helped his rugged home state become a leader in wind energy generation and wind manufacturing.
Udall’s approach is equal parts steady ascent and unflagging determination. His base camp is the Senate floor and from there he plans — to critics, annoyingly so — to make the extension of the PTC a daily topic of discussion. In a town notorious for the filibuster, the Democrat’s approach is slightly different in that he’s scheduled time each morning for when Congress is in session. And so it will be that every morning from now through the August recess, Udall will remind his colleagues why the PTC has gained widespread bipartisan support across much of the country, and why Congress should extend the soon-to-expire tax credit soon enough to keep the industry from contracting — and taking jobs with it.
This is the same refrain that has echoed through the halls of Congress and numerous statehouses since the end of last year. The industry’s growth, which is expected to surpass 10 GW of new installations through the end of this year, is closely aligned with the PTC, which pays out 2.2 US cents per kWh generated. That credit has helped to make wind energy a lucrative and worthwhile pursuit for developers and utilities alike, and its relative stability over recent years has allowed projects to move ahead with confidence. That strong pipeline has in turn ushered in a new era of US manufacturing, which has sprouted up across much of the country — all to support the growing industry.
Without promises of an extension, development plans have skidded to a halt, orders have dried up and large manufacturers are plotting their escape — or at least a scaled-back presence. At stake, according to a recent Navigant study, are as many as 37,000 jobs, a staggering number for an industry that currently employs about 75,000 workers. And extension, meanwhile, would add 17,000 jobs, according to the same study.
The industry has been down this path before, but the last time the PTC was allowed to expire the only real victim was project development. That was in 2004 and at that time about three quarters of the industry’s supply chain came from imports. Now, the US wind industry boasts about 500 manufacturing facilities, many of which are centered in places like the Southeast, where wind energy is a rare find, but where wind manufacturing is seen as one of the few bright spots for an economy that’s struggling to find traction.
Ideologically, the wind industry may find its broadest support among Democrats. But wind generation remains strongest in staunch conservative pockets like the Midwest, where turbines line farms across Texas and Iowa. And in states like Oklahoma and Kansas, the industry is ramping up to become a political force.
That’s why the PTC is a rarity. It’s a political hot potato, yet it’s one with wide support that has prominent Republicans and Democrats calling for its extension. Most agree that the tax credit is worth the $4 billion–$5 billion bill that comes with a one-year extension. According to PTC supporter Senator Charles Grassley, Republican of Iowa, members of his party are reluctant to move ahead with legislation until they can find budget savings to offset that expense. So far, the support has produced lots of nods and handshakes, but not enough legislators willing to jump into the hot seat and vote for its extension. The hot seat, of course, is boiling at the moment because of a perfect political storm. The general election is just months away and a centerpiece of the criticism is President Obama’s pursuit of a clean energy policy. And nipping at its heels is the growing reality that fundamental tax reform will follow the election. That has industry insiders and analysts trying to read Washington’s swaying tea leaves. How will tax reform come together? Will any type of tax policy receive a long-term extension in this political landscape? And how does wind differentiate itself amid the coming fray?
At Windpower 2012, the American Wind Energy Association (AWEA)’s annual conference in Atlanta in June, Republican strategist Karl Rove told those in attendance that the worst thing that happened for the wind industry was when Obama put the PTC extension on a Congressional ‘to-do list’ ahead of its August recess. Republicans say it won’t happen because Obama is failing to show leadership on the issue, and that the ultimatum proves their point. Democrats contend that there’s no way House Republicans especially will give Obama a political victory on the eve of the November election. Either way, few are giving a pre-election agreement much hope, even if Udall does succeed in giving the issue mainstream prominence each and every day.
That pushes the real political horse-trading into the tight window between the end of the election in early November and the new Congress in mid-January. By then, the PTC will be one of many cutthroat issues on the agenda, and it could get lost in the fray as the Bush tax cuts, the payroll tax holiday and the potential raising of the debt ceiling take precedence.
According to Tim Kemper of the Reznick Group, the PTC’s best bet is that it gets passed early in the lame-duck session (taking place after the election for the next Congress has been held, but before the current Congress has reached the end of its constitutional term).
If that happens, the industry may have enough deals waiting on the sidelines to retain some of that 2012 momentum. The later a deal is struck, the more difficult it will be to salvage 2013, which according to Bloomberg New Energy Finance could see as little as 500 MW of new installations. IHS Emerging Energy Research, meanwhile, has projected the market could drop from 11 GW in 2012 to just over 2 GW in 2013.
This small window of opportunity comes as America debates the future size of its government, and ultimately what role taxpayers will play in energy investment. The recent economic downturn has paved the way for fundamental tax reform, and programmes like the PTC could get caught in the line of fire.
The last big tax reform came in 1986, and it was the type of divisive, laborious process that makes rewriting the tax code in 2013 a long shot. That realisation could, perhaps, bode well for a one-year extension, but that would really put pressure on the industry to secure something longer term.