Has The Wind Energy Industry Peaked?

Even as Texas was setting another in a string of records in wind production in 2012, industry insiders were aware that time was running out on the wind energy boom. Wind has flourished over the last few decades in the U.S. as a result of generous tax credits offered by the federal government.  The Production Tax Credit has paid wind producers a fixed amount for every megawatt of electricity generated by wind turbines and sold to the grid.

The Production Tax Credit was set to expire at the end of 2012 and, in light of the fiscal cliff drama unfolding in Washington, didn’t seem to have a good chance of being renewed.  The industry claimed that loss of the tax credit would have cost 37,000 jobs.  Things looked so bleak for the tax credit that the industry even attempted a last minute Hail Mary; voluntarily suggesting a phase out of the credit over time rather than seeing it disappear entirely.

Ultimately the industry was saved, at least temporarily, when congress gave wind producers a late Christmas gift in the form of a one year extension with a cost to tax payers of an estimated $12.1 Billion over the next 10 years.   While certainly welcomed by those who stand to benefit from it, the one year extension does little create certainty within the industry. 

Challenges for 2013 and Beyond

2012 was a big year for wind power as producers scrambled to complete projects before year-end to be eligible for the federal money.  44% of all new electricity generation in the U.S. came from wind. That’s more than any other energy source.  As it was written, the law required producers to begin generating electricity by the end of the year to collect the tax credit money.  For that reason, very few producers had plans to come online in 2013. 

Wind projects, like any energy production project, take a long time to get off the ground.  The typical project takes from 18 to 24 months to complete.  This would have made the 2013 extension all but worthless if not for a subtle change in the wording of the rule.  The new extension pays out for any project that begins construction in 2013.   The old wording would have required new project to begin producing electricity this year to get the subsidies.

It will be interesting to see if the industry sticks by its plan for a gradual phase out of the tax credit.  Since the move was borne of desperation in an attempt avoid a cold turkey loss of subsidies for the industry they may look for a way to remove the proposal from the table. 

On the other hand, it may make sense to push for the certainty that such a plan would bring.  It should come as no surprise that congress’s one year extension simply pushes the tough decision down the road.  After all, that seems to be the preferred method in Washington these days.  Even a gradual phase out might be preferential to the uncertainty of annual last minute renewals that make long term planning for energy companies extremely challenging.   

See Also:  Texas Electricity: 2013 Outlook Improves

 

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