Posts tagged “tax credits”
If It’s December It Must Be PTC Time, Again
With the end of the year fast approaching, the US wind power industry faces yet another scheduled expiration of federal tax credits for new wind turbines. The wind Production Tax Credit, or PTC, was due to expire at the end of 2012 but was extended for an additional year as part of last December’s “fiscal cliff” deal. There are no signs yet of a similar reprieve this year.
With the PTC and other energy-related “tax expenditures” subject to Congressional negotiations on tax reform, this might truly be its last hurrah in its current form. It is high time for this overly generous subsidy to be “sunsetted”, and if it’s replaced with a smarter policy emphasizing innovation, the outcome could be beneficial for taxpayers, the environment, and even the US wind energy industry.
Too Big To Last
In its 20-year history, minus a few year-long expirations in the past, the PTC has promoted tremendous growth in the US wind industry, from under 2,000 MW of installed wind capacity in 1992 to over 60,000 MW as of today. For most of its tenure, the PTC did exactly what it was intended to do: reward developers for generating increasing amounts of renewable electricity for the grid at a rate tied to inflation.
Yesterday, I explained why Obama winning re-election is not necessarily an automatic savior for the wind power industry. Basically, an extension of the Production Tax Credit (PTC) is not a given (although I give it better than even odds), and the current extension being pushed by the American Wind Energy Association would act as little more than a band aid.
While an extension of the tax credits is vital to a robust wind industry in the U.S., developers must start to consider strategic options for financing projects in a world without the PTC. Even with financing innovations, successfully putting together wind deals will be very difficult, and without these financing strategies there will be a period of time where virtually no wind projects will be financed or built in the U.S. (Read More: 5 Reasons Why Good Energy Projects Don’t Get Financed)
Blowing in the Wind
Much time was spent in energy circles discussion leading up to the election on how the outcome would affect the future of wind power in the U.S. The general consensus was that an Obama reelection would lead to an extension of the Production Tax Credit (PTC), and with his election the rescue of the wind industry in the U.S.
Current turbine orders for U.S. delivery in 2013 sit near (if not at) zero, as the lack of support from the PTC makes it extremely difficult to produce wind power at a cost low enough to compete with natural gas derived electricity due to continued weakness in natural gas pricing. (Read More: Perfect Storm Brewing for Troubled U.S. Solar Manufacturers)
But it’s premature to proclaim the industry saved — and here’s why.
Three Thoughts on the State of the Solar Market
There has been some upheaval upstream in the solar industry. If you follow the solar business for any reason you know that solar manufacturers are challenged by excess supply and dropping panel prices, just this week rumors that industry stalwart JA Solar was facing possible delisting by NASDAQ surfaced. There have obviously been some high-profile failures of solar manufacturing companies. None of this should have come as a surprise – industry consolidation was expected (or should have been). Consolidation occurs naturally when an industry or technology moves up the adoption curve – new participants, new approaches to technology, new manufacturing techniques, increased scale and competition all accelerate price declines, which inevitably leaves some early industry participants vulnerable because sunk investment forces higher per unit production costs. In the case of solar, a surprisingly rapid drop in prices for photovoltaic panels was further accelerated by significant Chinese government investment in panel manufacturing capacity. The pace of the price drop surprised much of the industry and overleveraged solar manufacturers were caught trying to meet price points that were economically unsustainable. (See more: Wind Tax Credits and the State of Solar: A Discussion With Admiral Dennis McGinn)
Recently, I sat down to speak with Vice Admiral (Ret.) Denny McGinn, the President and CEO of the American Council on Renewable Energy (ACORE). Adm. McGinn served for 35 years in the Navy as a naval aviator and test pilot, rising to command an Aircraft Carrier, and ultimately the 3rd Fleet. His final position on active duty was as Deputy Chief of Naval Operations for Warfare Requirements and Programs at the Pentagon, which helps scope and develop the Navy’s capabilities for the future.
State of the Solar Industry
We had a wide ranging discussion on renewable energy issues, touching on issues that will be familiar to regular readers of my blog column, including the rapid growth of solar power and the challenge of Chinese competition, wind power, the military’s transition to clean energy, and the politics of renewable energy. I’ve divided the interview into two blog posts. In this one I will talk about wind and solar, while I will focus on the military in the next.
Despite the federal government pumping $7.5 billion into the electric vehicle industry in the United States through 2019, overall national gasoline consumption is unlikely to be significantly affected, according to a report released by the Congressional Budget Office (CBO).
Developed by the Bush administration in 2007 and initiated by the Obama administration in 2009, the program delivering the influx of cash is intended to help speed the growth of the fuel-efficient vehicle industry. The funds in question are made up largely by consumer tax credits that offer as much as $7,500 to consumers purchasing electric vehicles, followed by $2.4 billion in grants to electric battery manufacturers and $3.1 billion in loans intended to encourage automotive companies to increase production of electric vehicles. (See also: Will Range Anxiety Impact Electric Car Sales?)
With a nearly $1 billion government tax credit for the industry in doubt, the wind energy sector in the United States is on the brink of elimination, putting both thousands of jobs and the goal of promoting sustainable energy at risk.
In existence since 2008, the tax credit is aimed at helping startups in the wind energy industry to get on their feet, allowing them access to the funds that they need to be successful in the face of stiff competition from both other energy sources and undercutting by their Chinese counterparts. Those challenges have seen about 10,000 jobs disappear in the past four years as wind energy companies shrink in order to survive, making the potential elimination of the tax credit when it comes up for renewal again on December 31, 2012 a crisis-level concern for those invested in the industry. (See also: Do Government Subsidies Ever Pay Off?)
The answer largely depends on your definition of a subsidy and what you mean by payoff.
I’d suggest that many, if not most, subsidies are a roll of the dice (crap shoot) when it comes to the purported pay off. They are social experiments without any guarantee of success, which is not to say they should not be undertaken as long as a mechanism is in place to end the subsidy in a timely manner.
There are many examples that have paid off royally, along with many that were (and are) a waste of time and money to varying degrees.