California’s mandate that utilities and other providers get 33%… (Al Seib, Los Angeles Times )
To hear business leaders and political candidates talk, proper industrial policy comprises only three elements: a fair tax system, a level playing field and "certainty."
So why is it that all three are about to be thrown out the window as a sop to oil, gas and nuclear interests determined to fillet the wind-power industry?
The maneuvering in Washington is over a federal subsidy known as the production tax credit, which is worth 2.2 cents per kilowatt-hour to wind-energy producers. That's about a third of the cost of wind generation on average; under current law it can be converted into a 30% investment tax credit or, for projects that were under construction by the end of last year, into a 30% cash grant. Any way you slice it, the credit is an essential subsidy for getting the wind industry, shall we say, aloft.
But the mandate is hanging by a thread. After two decades of bipartisan support, suddenly it's a political football. Industry sources say that right up until midsummer its renewal again looked to be a slam dunk. Then it slammed into the wall.
What happened? For one thing, Mitt Romney lumped in the credit with other "stimulus boondoggles" despite its lengthy pedigree and advocated letting it expire. During his first debate with President Obama, he reinforced his hostility to the measure by attacking it as part of the "$90 billion in breaks" Obama has granted solar and wind technologies.
What Romney conveniently ignores is that fossil fuel and nuclear subsidies dwarf anything provided for renewable energy. But you don't hear him and the powerful old-energy interests talking about ending most of those handouts.
"All sources are subsidized one way or another," says Ryan Wiser, a staff scientist at Lawrence Berkeley National Laboratory and coauthor of an annual survey of the wind-energy market.
In other words, eliminating the wind-production credit unfairly tilts the tax system away from renewables and in favor of fossil fuels and nuclear energy, which have been enjoying subsidies for decades.
Romney's not the only assailant. The Super PAC Americans for Prosperity has sent letters to lawmakers from all over the country, calling for "an energy policy that is based on market principles, not one that is based on extending handouts to politically connected industries, such as the wind" credit. Americans for Prosperity is funded by the conservative brothers Charles and David Koch, whose family fortune comes from oil refining.
Also on the attack is the nuclear industry in the guise of Exelon Corp., an energy company whose portfolio is 92% nuclear. Exelon, which has been campaigning against the credit for more than a year, published a consultant's report last month suggesting that the credit provides a profit for wind producers even if they sell their energy at a loss. The industry disputes that.
It's hard to overstate the importance of wind energy to California, or the state's role in the industry's growth. California's mandate that utilities and other providers get 33% of their energy from renewable resources by 2020 is the nation's most aggressive goal, and wind is essential to meeting it. The mandate helped the state rank first in the nation in new installed wind capacity in 2011, knocking Texas off its perch for the first time in six years.
California is likely to rank first again this year, but it still lags behind in total capacity with 3,917 megawatts of wind production as of the end of 2011, ranking third behind Texas (10,394) and Iowa (4,322).
There's no question that the production tax credit has been effective. Since its enactment in 1992, wind generation in the United States has grown from almost zero to about 47,000 megawatts, according to a study done by Lawrence Berkeley National Laboratory for the Energy Department. That has made the U.S. the second-biggest generator of wind energy in the world, behind China. But in terms of the national energy portfolio there's still a long way to go: Wind generation in the U.S. is equal to only 3.3% of our electricity consumption, well behind Denmark (29%), Portugal (19%) and Germany (11%).
"Wind has accounted for more than 30% of new electricity generation in this country over last five years," says Gregory Wetstone, government affairs director for Terra-Gen Power, owner of the 1,020-megawatt Alta Wind Energy Center near Tehachapi, the nation's largest wind farm. "Without a production tax credit … we'd be suddenly saying we don't want wind anymore."
If the renewal goes through, he says, Terra-Gen would move ahead with plans to expand its Kern County wind farm by 300 to 400 megawatts. If not, the expansion probably won't happen.