Expiring Tax Credit Threatens Wind Boom

When Brad Sawyer graduates next spring from Texas State Technical College in Sweetwater, he hopes to get a job as a wind turbine technician, working on the towering three-bladed machines that dot the West Texas countryside.

“I think that the jobs will be there,” said Sawyer, who is in the wind energy technology associate’s degree program. However, he added, if the federal government changes its policy on wind power, things could get “pretty tight.”

Sawyer and wind power companies are closely watching developments in Washington, where a tax credit benefiting wind farms is due to expire at the end of this year. If Congress does not renew the credit, the implications could be especially significant in Texas, the top wind power state, which contains about a fifth of the nation’s turbines and is building expensive transmission lines to support more growth. Some of the state’s leading Republicans, despite advocating for wind power in the past, are doing little to aid it now.

“We haven’t had the industry come to a stop like this before in a long, long time,” said Walt Hornaday, president of Cielo Wind Power, an Austin-based wind farm developer. His company is pursuing work in other countries, but otherwise, he said, “we would definitely be looking at very large layoffs.”

Federal tax policies lie at the heart of the industry’s woes. An incentive called the production tax credit, in existence since 1992, expires in December. It allows wind farm owners to lower their tax bills in exchange for producing electricity. Wind companies want Congress to extend the credit, as has happened many times before, to sustain their emissions-free and drought-proof energy source. But a growing number of Republicans, including presidential nominee Mitt Romney, are pushing back against green energy subsidies.

“This is the first time a presidential nominee of a major party has come out against the extension,” said Andy Bowman, president of Pioneer Green Energy, an Austin-based renewable energy developer.

U.S. Sen. John Cornyn, R-Texas, who has approved extensions of the credit in the past, voted in the Senate Finance Committee in August against a bill containing a one-year extension. (The extension passed the committee but remains stuck in Congress.) However, he would back a one-year extension if the tax benefits were reduced by 20 percent.

“People are starting to question, and that’s a good thing, but it’s taken a long time,” said Patricia Lapoint, who lives near a West Texas wind farm and has been fighting the industry for years.

Jessica Sandlin, a spokeswoman for Cornyn’s office, said in an email that he “believes Congress must undertake real, comprehensive tax reform rather than a piecemeal approach.”

Of the U.S. Senate candidates from Texas, Ted Cruz, the Republican nominee, said in an e-mailed statement that he wants to “develop all forms of energy” but is “not a supporter of government subsidies.” Paul Sadler, the Democratic nominee, who until recently served as executive director of a wind power lobby group, backs renewal of the credit, which he described in an email as an “effective tool encouraging growth of this clean and sustained energy source.”

Gov. Rick Perry, viewed as a wind power stalwart for championing transmission lines and signing a renewable energy mandate in 2005, now emphasizes the need to remove all federal energy subsidies — a popular talking point among Tea Party supporters.

Because wind farms must begin operating this year to be eligible for the credit, which they can then claim for 10 years, developers are rushing to finish wind farms. Next year, activity is expected to drop sharply. Construction is especially busy in parts of South and North Texas, according to Bowman. West Texas, where thousands of turbines are already operating, has seen activity slow while more transmission lines to carry the power get built, he said.

Some wind experts think the credit extension will ultimately pass Congress, albeit after the November election, because it has strong bipartisan support in other windy states (if not Texas). But others do not, and the industry is left to bemoan the difficulty of long-term planning. A one-year extension could mean the wrangling resumes next year. Hornaday said that Texas could benefit more than other states from a one-year extension because there are fewer rules here, making wind farms easier to build.

If permitting obstacles surface in other states, “I can always pick up the turbines and put them in Texas,” Hornaday said.

But if the credit does not get extended, the surviving development activity could move to states with clean-energy requirements or higher energy prices than Texas, Bowman said. (Texas has long surpassed its renewable power mandate.)

Texas is feeling the slowdown; analysts say manufacturers in particular are likely to be hard-hit. Vestas, a major turbine manufacturer based in Denmark, is closing a research and development facility in Houston that opened just three years ago and once employed 75 people. Trinity Industries, a Dallas-based manufacturer of industrial equipment, foresees a “significant decline in wind tower production in 2013” if the credit expires, according to comments in July by William McWhirter, a senior official with the company. The company plans to use some of its wind manufacturing facilities to make rail cars.

BP Wind Energy has recently completed several major wind farms in Texas, and a failure to extend the credit would be “devastating,” according to a statement from Sarah Howell, a BP spokeswoman. However, “we have no intention to make any changes to our operations or personnel into 2013,” she said.

Officials are also expressing concerns about the role of wind power on the Texas electric grid. Wind accounted for 8.7 percent of the grid’s energy for the first eight months of this year. But some officials have recently complained that the turbines bring down wholesale electricity prices because their fuel — wind — is free, and the production tax credit reduces the price further, so sometimes it is even negative.

As the theory goes, this cheap energy cuts into the profitability of companies that operate natural gas- or coal-fired power plants, making them disinclined to build new plants, which are needed to keep the lights on.

Last week at a state Senate committee hearing, Donna Nelson, chairwoman of the Public Utility Commission of Texas, blamed federal renewable energy incentives for distorting the market and being “one of the primary causes” of the grid’s current strains. Wind advocates counter that the abundance of natural gas, not wind, is the chief reason power prices are low, and note that cheap natural gas in fact hurts wind by making it less competitive.

“I think we all need to move with extreme caution before adopting any additional incentives or mandates,” said Nelson, who is also wary of wind’s variability.

Nelson’s agency has helped give wind power an important boost. Because of legislation passed in 2005, Texas is building $6.9 billion in transmission lines — about $270 for every Texan — to transport wind power from West Texas to cities hundreds of miles away. The lines should be finished by the end of next year, and costs will be recouped from ratepayers, subject to the approval of the utility commission, which is overseeing the build-out. The expansion is supposed to increase the amount of wind power currently on the Texas grid by about 60 percent or more.

But if the tax credit expires, there might not be as much wind power at the end of the lines as Texas officials had envisioned, at least initially.

“It’s kind of like in real estate — if you build a bunch of roads to real estate development, and then the real estate market comes to a stop, eventually houses will get built,” Hornaday said. “But yes, there’s a pretty big potential that a lot of those improvements will be idled for a few years.”

Grid officials argue that the lines will provide a crucial long-term benefit.

Wind faces other obstacles, too. Texas officials have recently begun scrutinizing property tax breaks that wind developers receive and are listening to naval aviators’ concerns about radar interference from the turbines that have proliferated along the Texas coast. Asked about what to expect during the next legislative session, Russel Smith, executive director of the Texas Renewable Energy Industries Association, said he planned to emphasize the economic development benefits of wind.

“There’s certainly a sense that even more than last session,” Smith said, “there’s going to be a lot of playing defense.”