“I’ve been hearing a lot about extending the production tax credit lately. I heard it doesn’t expire until the end of the year, so why the urgency?” — Kevin M., Charlottesville, Virginia
In my last Ask the Experts column, I wrote about renewables legislation, more specifically a renewable electricity standard and production tax credit (PTC), and their prospects for the new year.
Now, just a month into 2008, the PTC is already a red-hot issue, and it’s back on the table on Capitol Hill. You are correct, Kevin, that the PTC is set to expire at the end of the year. But Congress must act as soon as possible if wind energy is going to flourish as it can and contribute its part to driving the economy forward. Here’s why.
The PTC, currently set at $.02 per kilowatt-hour for electricity produced by wind and other renewable energy facilities, is the wind industry’s only financial policy support mechanism. That lone piece of support, though, has hardly created the stable policy environment needed for wind developers, turbine manufacturers, and companies all along the ever-growing “value chain” of component suppliers to plan and invest for future growth. Since its first scheduled expiration in mid-1999, the PTC has regularly been extended in mere one- and two-year increments, often in the eleventh hour of an expiring year, and has even been allowed to expire on certain occasions.
Here’s another look at how the short-term, and sometimes eleventh-hour, extensions have affected industry growth and stability. RenewableEnergyAccess.com published this image on January 22nd, along with the story, “Renewable Energy Leaders Urge Congress, Bush to Extend Tax Credits Quickly,” but it bears repeating here:
Contrast this uncertainty with other segments of the energy industry. If you think renewable energy gets a little extra support because it’s a relatively new technology, think again. Because energy is such an essential part of society, virtually all energy sources receive some type of policy support; oil and natural gas, for example, have received federal assistance during the last 75 or so years for such fundamental segments of their business as exploration and extraction. Even over the past five years, fossil fuels continue to receive 75% of federal tax incentives for electricity, according to a recent report from the Government Accountability Office. Many such incentives are permanently embedded in the tax code, ensuring industry stability.
The wind industry knows it can be a significant contributor to jobs and economic growth at a time when the economy needs it most. For that reason, advocates are pushing for a PTC extension to be included in the economic stimulus package. Last week the U.S. Senate’s Finance Committee included a one-year extension of the PTC in the economic stimulus package it approved, although the bill still will need a full 60 votes for it to overcome an inevitable filibuster attempt on the Senate floor. As of this writing, a Senate floor vote was expected to come this week, most likely after Tuesday’s Presidential primaries, so that Senators Hillary Clinton (D-N.Y.), John McCain (R-Ariz.), and Barrack Obama (D-Ill.) can return to Washington for the vote. Last week the U.S. House of Representatives approved a narrower stimulus package that does not include a PTC. That package has the support of President Bush.
The industry has undoubtedly grown used to living in an environment of one- and two-year extensions and can easily manage the uncertainty, right? Wrong. Here’s why. Having put up such impressive growth numbers the last few years including 27% in 2006 and a whopping 45% in 2007, the wind energy industry is now much larger than it once was. With wind having arrived as a mainstream energy source, projects are bigger, turbine orders are for more units, and the financial stakes are many times higher. In 2007 alone, companies either opened or announced 14 new manufacturing plants, accepting an extra dose of financial risk in a country that has yet to truly show a long-term commitment to their industry. If the PTC is not extended soon, some 75,000 jobs will be put at risk.
With the industry the size that it is now, companies need to plan ahead more than ever. Turbines, for which there is a shortage that would be much less severe with long-term extensions already in place, are generally sold out for 2008, and manufacturers are taking orders for the years beyond that. Developers must call dibs on turbines if they want to stay busy beyond this year, and they need to keep their development pipelines of proposed projects full as well.
In early December of 2006, the industry received better news than usual when Congress extended the PTC-at the time set to at the end of 2007-through 2008. For an industry used to a schizophrenic world of boom and bust, that was at least a short-term dose of stability, which was much needed, given that wind was already a relatively significant energy player with over 10,000 MW in the ground and growing fast. Now, the expiration of the PTC is only months away and the industry, once again, is adamantly urging an extension, not just by the end of the year, but as soon as possible. After all, it has big plans to make, and planning requires stability.
If you want to see an extension of the PTC sooner rather than later, contact your Members of Congress. You can easily get their contact information by going here.