Wind Industry’s Desperate Move to Retain Federal Subsidies

The wind power industry is so desperate to maintain its lifeline of federal subsidies that it has put forth a plan to phase out the wind energy tax credit in the next several years in exchange for an immediate extension of the current production tax credit into 2013. 

The wind energy sector has benefited substantially for years from a federal tax credit paid to companies that produce electricity from wind and sell it to the grid.   The credit equals 2.2 cents per kilowatt hour and has been essential to the growth of the industry. 

According to the American Wind Energy Association (AWEA), the Production Tax Credit “has succeeded in incentivizing an average of $15.5 billion a year in private investment in U.S. wind farms over the past five years.”

However, the tax credit is set by law to expire at the end of 2012 and despite a long battle, proponents of the credit have failed to get an extension of the subsides passed in to law.  As a result, the federal money will run out on December 31st, 2012,  leaving the economics of electricity generated from wind substantially changed.

With time running out and Fiscal Cliff debate dominating the agenda in Washington, the proposal by AWEA is a Hail Mary attempt to get an extension of tax credits passed in some form and perhaps buy more time to secure a more favorable deal for the industry at a later time.

The proposal would sunset the tax credit in 2018 after slowly reducing it for the next several years.

For projects put in service in:

  • 2013 – 100% of the 2.2 cents per kilowatt hour
  • 2014 – 90%
  • 2015 – 80%
  • 2016 – 70%
  • 2017 – 60%
  • 2018 – 60%
  • 2019 – Subsidy ends for projects coming on line this year and beyond.

Clearly the new proposal is not the kind of deal the wind energy industry would prefer.  But these are desperate times for an industry that despite years of government subsidies is not able to compete with other energy sources on a purely economic basis. 

Texas is the largest producer of wind electricity in the United States despite the fact that extremely low natural gas prices have meant cheap electricity for the state in recent years.  With electricity rates being so low, the state has struggled to insure there will be enough capacity to meet future demand for power.  This loss of federal subsidies for wind could further hinder the state’s efforts to gain more capacity.