The federal renewable energy production tax credit (PTC) offers tax relief on a per-kilowatt-hour basis to producers of electricity generated by qualified renewable sources. It was introduced as a part of the Energy Policy Act of 1992 in an effort to foster growth in clean energy markets. The credit has been largely utilized by the wind industry, resulting in substantial growth over the past 2 decades. Congress has allowed the credit to expire four times and has extended the timeline five times, with the most recent extension passed earlier this year. The credit is poised to expire at the end of 2013 again. In light of all the PTC has enabled the wind industry to accomplish, the uncertainty surrounding its extension drags companies even further into the cycle of boom-and-bust that mirrors the frequent expirations and renewals. A current proposal to extend the PTC for a ten year period is estimated to cost $24.7 billion, and windmakers assert that such an extension, paired with a strategic phase-out toward the end, will give the industry the time it needs to continue to grow at a sustainable level, without the help of further subsidies. At a fraction of the cost of subsidies given to the fossil fuel industry, the long-term public health, environmental, and social benefits of an energy infrastructure that doesn’t produce massive concentrations greenhouse gases such as CO2 far outweigh the cost of extending the production tax credit for wind.
The PTC provides a 2.2-cent/kWh credit for the first ten years of a renewable energy facility’s operation. Eligible companies include wind, geothermal, and closed-loop biomass (crops grown specifically for energy production). Open-loop biomass (forestry and industrial waste), efficiency and capacity upgrades for existing hydroelectric facilities, landfill gas, municipal solid waste, and other technologies receive a 1.1-cent/kWh credit under the PTC’s provisions. If a company wants to receive the benefits of the credit on a new project, significant work and/or investment must have commenced by December 31, 2013. This deadline has many wind producers scrambling to get their projects underway, and just as many turning away from their projects, averse to the financial risk of not receiving the funding necessary to proceed.
If there’s one thing we know, it’s that the production tax credit has a positive effect on clean energy industries. According to a recent press release, LM Wind Power, a major supplier of turbine blades, has doubled its US workforce in the time period between April and August, from 350 to 700 employees. LM projects its employment will reach 1,200 in the US in 2014. And the jobs created by the wind industry are good, reliable jobs. Wind turbines are massive pieces of equipment, requiring many unique parts. Because of the complexity of the manufacturing process, and the actual size of the pieces, the United States has a competitive advantage for producing turbine parts domestically. In addition to securing work for thousands of Americans, extending the PTC will ultimately reduce greenhouse gas emissions and our dependence on fossil fuels.
While extending the production tax credit has clear benefits for wind and other clean energy industries, there is still much opposition to the measure. Opponents claim that electricity generated by turbines is inefficient because the wind blows intermittently, and a background source of power is required to compensate for calm days. And in most cases, this background power comes from fossil fuel sources. This shouldn’t serve as a reason to let the credit expire, however. If wind continues to receive the assistance it needs to thrive, future investment in clean energy technologies like solar, hydropower, and battery and storage technologies to provide background electricity for turbines seems highly likely. The long term public health, environmental, and social benefits of an energy infrastructure that does not emit carbon dioxide and other greenhouse gases at a high level far outweigh the short-term costs of giving windmakers the help they need to stand on their own two feet.
The PTC is only offered to companies that meet clear, performance-based standards. The credit has allowed 550 wind facilities to open and operate within the United States. It provides strong incentives for growth amongst wind producers, and its constant expiration and renewal leaves investors wary and uncertain about the future of wind power. Industry experts recommend phasing out the credit over the next ten years, and introducing mechanisms such as Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs), which will give wind companies tax structures similar to those of fossil fuel companies, who collect billions of dollars in profit each year. Green America strongly urges policy makers to extend the production tax credit so that wind power and other clean energy technologies can develop more rapidly – the time has never been more urgent.
A provision to extend the PTC for ten years is included in the Clean Energy Victory Bonds Act, which would provide funding on a national scale for clean energy development.
A summary of the production tax credit’s history can be found here.
This blog posting was written by Sam Catherman, Green America’s Climate Action Program Intern.