Fickle Like the Wind: The Boom-and-Bust Cycle of the Renewable Energy Tax Credit
The Production Tax Credit may not be America’s best policy tool for incentivizing clean energy development, but it’s what we’ve got — and it must be renewed
There are three letters on the minds of those in America’s renewable energy sector: PTC. The acronym stands for Production Tax Credit, a critical tax incentive that is set to expire in 2012 unless Congress takes action. Considering the PTC’s on-again, off-again status over the years — and that on matters concerning clean energy investments, Congressional Republicans seem more focused on investigating the loan guarantees issued to the solar manufacturer Solyndra, which went bankrupt in September — the proponents of renewable energy are rightfully concerned.
The PTC is the main financial assistance vehicle that renewable energy investors and developers receive from the federal government, amounting to 2.2 cents per kWh over the first 10-year period that an approved facility is in operation. The wind industry in particular relies heavily on this credit, which has been critical in driving the sector’s growth over the past seven years. IHS Emerging Energy Research, an independent advisory firm based in Cambridge, Massachusetts, says that without the PTC, wind installations could plummet from a forecasted annual peak of 10.5 GW in 2012 to 1.5 GW in 2013.
A Bipartisan Bill to Extend PTC
On November 2, representatives Dave Reichert (R-Wash.) and Earl Blumenauer (D-Ore.) introduced the bill H.R. 3307, The American Renewable Energy Production Tax Credit Extension Act of 2011, to extend the PTC. But even though it has bipartisan support and would extend the federal tax credit through 2016 for installations of wind, solar and hydro, its fate is unclear. The credit has been in existence in various forms since the Energy Policy Act of 1992, but Congress has regularly flip-flopped between renewing and retiring it.
On Tuesday, 23 governors sent Congress a joint letter crafted by the Governors Wind Energy Coalition, urging both houses to “promptly pass a multi-year extension of the wind tax credit,” noting that “without policy certainty, investors, developers, and manufacturers will move projects and jobs elsewhere.” The governors also noted, “Like the oil and gas industries — which enjoy substantial tax credits that have not expired in nearly 100 years — wind energy, a domestic source of energy, needs a predictable policy for sustained economic growth and innovation.”
Always Up in the Air: The Boom-Bust Cylce
“The wind industry is facing the recurrence of the boom-bust cycle it saw in previous years when the PTC was allowed to expire,” said Peter Kelley, Vice President of Public Affairs at the American Wind Energy Association (AWEA), in an email. “In the years following expiration, installations dropped by between 73 and 93 percent, resulting in significant job losses.” He said that layoffs have already started and that the total job losses incurred by a lapse in the PTC would be in the thousands. The AWEA has launched a petition that American citizens can sign to urge their representative to co-sponsor the bill.
Opponents of the PTC argue that this seesaw cycle leads to a concentration of production at the end of the fiscal year, and provides little forecasting stability for developers. “Boom and bust development is no way to run a business and is certainly no way to create a dynamic and healthy renewable energy industry,” writes Paul Gipe, author of Wind Energy Basics: A Guide to Home- and Community-scale Wind Energy Systems. “Companies expand then contract, hiring and then firing in an oft-repeated cycle. When developers have been bitten by the gold fever, impacts on the environment and on nearby communities take a back seat to getting projects ‘in the ground.’”
The Door is Closing, The PTC Should be Extended
Still, Kelley pointed out that the PTC helps to maintain low electricity rates, encourages clean energy project development, helps the wind industry reduce power cost by more than 90 percent, provides energy for the equivalent of 10 million homes and spurs economic development in every state, providing work at over 400 American manufacturing facilities.
In the end, the PTC may not be the ultimate federal policy tool for incentivizing investments in renewable energy, but it’s the tool that is right in front of us. And considering that Republican presidential front-runner Mitt Romney chooses to fly in the face of science and utter things like, “We don’t know what’s causing climate change,” it’s imperative to keep alive those federal incentives that help transition the United States to a low carbon economy while we still can.
Perhaps a more substantive national discussion about global warming and our energy infrastructure will happen before it’s to late, but as Fatih Birol, chief economist at the International Energy Agency (IEA), recently said, “the door is closing quickly.” Birol’s warning came as the IEA released the most comprehensive analysis of global energy infrastructure, finding that the world is headed for irreversible climate change within five years if mankind continues to build fossil fuel infrastructure.
“Delaying action is a false economy,” according to an IEA statement issued on November 9 in London. “For every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions.” Congress should take the IEA report into consideration and pass a four-year extension of the PTC. Hopefully a little more wind in America’s energy infrastructure will keep that door open a little bit longer.
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