Blowing in the wind

The Gazette Opinion Staff
Published: March 24 2013 | 12:01 am - Updated: 28 March 2014 | 1:08 pm in
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The Gazette Editorial Board

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Yet angst in the wind industry grew in 2012 as Congress fumed and fussed about extending the wind production tax credit beyond Dec. 31. Companies, in the face of losing the $22 per megawatt government subsidy for any capacity added after that deadline, invested $25 billion toward a record 13,124 megawatts of new production, an increase of 28 percent over 2011, according to national industry sources.

In Iowa, that expansion included completion of three wind farms by MidAmerican Energy, the state’s largest utility, with 30 percent of its power now from wind, and another one built by a subsidiary of Alliant Energy.

And notably, Google, the Internet product and services giant, announced a $75 million investment in an Iowa wind farm developed by a West Des Moines company.

SLOWDOWN, LAYOFFS

Last year wasn’t all positive for the Iowa wind energy industry. Turbine plants in West Branch, Cedar Rapids and Fort Madison laid off a total of more than 500 workers. And just last week, a Maryland-based turbine company, with plans to build a plant in Iowa City and employ about 175, announced that the project is on hold.

Industry officials have blamed the slowdown mostly on the lack of congressional action on the tax credit as well as increased use of natural gas-fired power plants and an overall sluggish economy.

As it turned out, Congress, in its last-minute deal to avoid the so-called “fiscal cliff,” did extend the production tax credit, also available for solar and geothermal, for one more year. It marked the third time since 1992 that Congress had allowed it to expire, only to renew it again later.

But the latest is an especially short-term decision that leaves serious questions unanswered:

l Is Congress committed to subsidizing renewable energy for the long term?

l If so, how long should the tax credit be in place?

GLUT OF WIND POWER?

Those questions are even more pertinent in light of a Bloomberg News report last week. Citing utility executives and experts and government data, it found that a “glut” of government-subsidized wind power, combined with cheap, abundant natural gas, has hurt the nuclear power industry’s profits and reduced reliance on coal power plants. The wind power boom got partial credit for a 40 percent wholesale power-price drop since 2008 in the Midwest.

Good news for consumers, at least for their utility bills.

But, as the report points out, wind power has some “artificial” advantages that other sources don’t. Many states’ green energy laws, including Iowa’s, require utilities to purchase or produce a designated amount of power from wind or other renewable sources as part of clean-energy goals. And those mandates’ standards will increase in the next few years.

Then there’s that federal tax credit. Even when there’s no demand for their power, operators keep turbines going because that tax credit is based on production and their power must be taken by utilities.

Some critics suggest it’s high time to end the production tax credit, at least for wind. They say the 30-year-old industry is well established, its costs are dropping and technology gains have made turbines much more efficient.

Industry reps say it’s too early to pull the plug all the way out just yet. They say it be counterproductive to expanding the nation’s green energy and reducing reliance on fossil fuels. They also point to growing economic benefits starting to take hold.

TAX BASE GROWING

In Iowa, beyond the new jobs and spinoff business creation, the property on which turbines generates property taxes for local governments. After a phased-out tax abatement period of six years passes, the assessed value reaches 30 percent of the acquisition and construction costs. The total estimated assessed value for all turbines currently operating is $2.6 billion when fully valued, according to the Iowa Wind Energy Association.

That tax base increase can make an especially big difference in Iowa’s rural, less-populated counties, where most of the turbines are located. For example, in Pocahontas County, the 216 wind turbines already comprise 9 percent of the county’s total tax base and have increased funding for local school districts, while some residents’ tax bills have gone down.

Clearly, Iowa’s economy has benefitted from the wind industry growth.

However, we don’t think federal tax credits or subsidies for any industry should be never-ending. The original intention should be to assist and even accelerate development of new ventures that public policymakers view as beneficial overall to the nation. Once there’s a firm foothold, and market demand is solid, why should that public assistance continue?

Shane Mullins, vice president of product development for the power industry at a Texas research firm, is even predicting that the tax credit won’t be extended again. In a Gazette page 1A report today, he says that with natural gas prices expected to rise in 2016 and the increased demand for renewable energy kicking in, wind will be able to compete without the need for the PTC.”

No doubt this nation must rely on mix of power sources to meet demand and sustain healthy economic growth well into the future. However, we agree that the mix should be increasingly “cleaner” to reduce negative environmental impact.

PLAN WITH A SUNSET

We see merit in a proposal to phase out the tax credit over several years, as has been proposed. Allow the industry reasonable time to plan for a future without government financial support.

Most important, Congress needs to send a clear message well before the next expiration deadline arrives on Dec. 31. Don’t create or worsen boom-and-bust economic cycles with 11th-hour political decision-making. Lay out a plan that defines how long the tax credit support will continue and how and when it should end.

l Comments: editorial@sourcemedia.net or (319) 398-8262

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