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With Tax Credit in Doubt, Wind Industry Ponders if It Can Stand on Its Own

Some fear the momentum that has been building in the U.S. wind sector could come to a halt if the tax credit is allowed to expire at the end of next year.

By Drew Kerr, Midwest Energy News

Sep 27, 2011
Wind farm in Ruthton, Minnesota

Minnesota wind developer Dan Juhl has seen the scenario before.

The wind production tax credit—seen as a key incentive to bringing new wind energy projects online—nears its expiration date, expires without legislative action and then comes barreling back, reviving the industry after a period of stagnation.

It's a sequence of events that has played out three times in the last decade, most recently in 2003, and is unfolding again today. The current tax credit, which provides developers with 2.2 cents per kilowatt-hour for electricity produced from utility-scale wind turbines, is set to expire at the end of 2012.

Industry officials have called for a long-term extension, but so far no action has been taken. Senate Majority Leader Harry Reid, D-Nev., recently said he was "not confident" it would pass given the mood in Washington, and wind energy proponents said they would not hazard to guess at its fate.

You would think that Juhl, the chairman and chief executive at Juhl Wind Inc., would be carefully tracking the issue. His company is behind four of the 15 new wind energy projects expected to come online before 2012, and has longer-term ambitions.

But Juhl said he no longer relies on the whims of Congress when thinking about the future. The need for alternative energy, he said, is simply too strong to be tempered by tax policy, he said. And besides, the tax credit has always returned.

"The tax credit has been extended many times, and many times it's at the very last minute or a month after," Juhl said. "You can't really throw in the towel; you just have to keep moving ahead."

Others aren't so confident, however.

Around the Midwest, wind energy proponents are making the case that the credit needs to be extended for a decade or more. The issue has risen to the top of the wind energy agenda, and urgency grows with each month that passes without action.

"Without a doubt, the expiration of the production tax credit is of great concern to our industry," said Jeff Anthony, the director of businesses development at the American Wind Energy Association. "It has expired three times in the past, and each time it has resulted in major disruption."

"It puts a big hiccup in the industry and just continues the boom and bust cycle that we're trying to break," he said.

Momentum Lost

According to AWEA, 35 percent of all new generating capacity added in the United States over the last four years has come from wind turbines. The organization reported in August that there had been 2,151 megawatts of new wind energy capacity installed in the first half of 2011, up 72 percent from the same time period a year before.

Officials are forecasting continued growth, too. In Minnesota, now the country's fourth-largest wind-energy producing state, wind power is seen as the primary way to meet the state's renewable energy standard.

Minnesota's wind farms currently have a load capacity of 2,518 megawatts, enough to power 700,000 homes at a given time. The capacity will need to more than double for the state to obtain a quarter of its energy supply from renewable resources by 2020, according to a 2006 report by the EnerNex Corporation. The model assumes energy consumption will increase 1 percent annually. The state aims to get a quarter of its energy from renewable resources by 2025.

In Iowa—which now leads the country in wind energy consumption—officials hope to get 30 percent of the state's energy from wind by the end of 2012. Companies around the state are scrambling to get their projects completed by the end of next year, a rush that is playing out around the country as the tax credit deadline looms.

"There's a huge rush to get every project in the ground right now," said Harold Prior, the executive director of the Iowa Wind Energy Association, which is pushing for a 10-year extension of the tax credit.

But the momentum that has been building could come to an abrupt halt if the production tax credit is allowed to expire, industry officials say.

They point to previous instances when the tax credit was allowed to expire as evidence. In 2004, the last year after the production tax credit lapsed, just 389 new megawatts were installed nationally—a 76 percent drop from the year before.

Such a drop-off hurts manufacturers who make component parts, leads to job losses in the construction field and could slow progress for several years as companies adjust, officials say.

"Any smart business is going to have a plan for multiple scenarios, and most companies probably have a plan in place, but there is still likely to be a downturn as companies adjust," said Josh Gackle, a policy manager at Wind on the Wires.

"That (adjusting) will be harder for some companies, easier for others," he said.

Standards in Play

State renewable energy standards, which require utilities to buy a set amount of energy from renewable resources, have helped support much of the wind industry's growth in recent years. The standards are designed to create a market incentive for renewable resources, making them competitive with traditional energy supplies such as coal.

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