Wind projects stalled over tax credit uncertainty
NORMAL — If Congress decides to extend a federal production tax credit to give wind farm developers an incentive to start building again, there might be a "big rush" in 2013 to take advantage of it before it expires again, an Illinois State University economist said.
But whether that would mean more wind farms being built in Illinois any time soon remains to be seen.
"Each company will only have so many projects that they can physically get done ... so they're going to have to prioritize which projects get done. And Illinois projects might not get built with that level, that kind of a rush," said David Loomis, an economics professor who heads Illinois State University's Center for Renewable Energy.
The production tax credit, or PTC, expires at the end of this year. Sen. Charles Grassley, R-Iowa, the author of the original tax credit in 1992, has introduced a bill that would extend it through the end of 2013, and Grassley hopes for a Senate vote later in November or December.
But deep differences over spending in Congress have made the PTC's fate uncertain. And that uncertainty has stalled wind farm development nationwide and led to cutbacks at major U.S. turbine manufacturing plants.
"It's just the uncertainty of the whole thing — that's what's causing this," said Turner Hunt, president of Cincinnati-based wind farm developer Vision Energy. "It's hard to have a plan in place (for a wind farm) when you have your credit on a yo-yo string."
Loomis said he thinks the extension of the PTC — which gives developers 2.2 cents per kilowatt-hour for the first 10 years of electricity production from large-scale wind turbines — is "critical to the future of the Illinois wind industry, especially in the short term, meaning seeing projects get built in the 2013-2014 time frame."
Illinois, which boasts 3,364 megawatts of electricity generating capacity from wind farms, has another 3,070 megawatts of wind energy waiting to go on the grid, as well, Loomis said, referring to the 21 projects that have been permitted in the state but are yet to be constructed.
"But they're not going to be going under construction any time soon without the production tax credit," Loomis said.
Loomis said having the tax credit in place is important because it makes wind farms financially feasible. With the tax credit, developers can seek financing from banks and use the tax credit as security.
"It can be upward of $500 million to finance a wind farm, so having that certainty is necessary in today's environment to get all the financing done," Loomis said.
Among the projects that have received special-use permits but are waiting to be built are two local projects: Vision Energy's K4 Wind Farm, which encompasses portions of Ford, Iroquois, Kankakee and Livingston counties; and BP Wind Energy's Ford Ridge Wind Farm near Gibson City and Sibley.
Both projects last year applied for and received extensions of their special-use permits, until November 2014 and November 2015, respectively.
Hunt said "it would not mean a cancellation of the (K4) project" if the PTC is not renewed, but he also said the tax credit represents "a very important economic piece" of the project.
Hunt said his firm hopes "in an ideal scenario" to have construction started "some time in 2013." He said the company still needs to complete power purchase agreements with utility companies before that can happen.
E.On Climate & Renewables North America Inc., a Chicago-based wind-farm developer, indicated that if the PTC is not extended, it would have an impact on the firm's future wind farm projects, especially those slated for construction in 2013.
E.On is building a wind farm north of Indianapolis near Elwood, Ind. Last year, the firm completed its first two wind farms in Illinois, near Paxton and Sheldon.
"We're taking a look at (what Congress decides) because we're trying to determine what our strategy is going to be moving forward," said Matt Tulis, communications manager for E.On.
Both Tulis and Hunt are optimistic lawmakers will approve an extension of the PTC. But that is caught up in deep differences over spending in Congress, where fiscal conservatives in the Republican Party are fighting renewal even as other GOP members push to continue the program.
The Senate Finance Committee has approved Grassley's bill to extend the credit for a year, but Grassley doubts the measure will come up for a vote before the November election. He hopes for a Senate vote later in November or December, but its fate in the Republican-controlled House is uncertain.
U.S. Rep. Tim Johnson, R-Urbana, has supported tax credits for renewable energy in the past, according to Johnson spokesman Phil Bloomer.
The credit expired in 1999, 2001 and 2003 and was always renewed, but each time it expired, jobs plummeted as energy producers held off on planned projects. It was most recently renewed in the economic stimulus bill signed by President Barack Obama in February 2009.
Opponents of the tax credit argue that the government should not be providing an incentive to products that can't make it on their own in the marketplace. A bill has been proposed that would end all energy tax subsidies.
Meanwhile, various groups have been contacting congressmen and asking them to reject the extension of the PTC this year. Among them is Energize Illinois, a Ford County-based organization opposed to the wind energy industry.
"We're definitely for not extending it," said Energize Illinois member Cindy Ihrke of rural Roberts. "Wind energy is a waste of taxpayer dollars. ... Our government is taking our tax dollars and investing in something that is never going to solve our problems. ... Wind energy will never solve our energy problems. It can't. Physics doesn't allow it to.
"So all it's doing is dumping our tax money into another big lie and making people rich that aren't doing any benefit for us."
Loomis said failure to extend the tax credit would likely mean fewer wind farms being built in the U.S. But he said he is hopeful the wind energy industry's reliance on the tax credit will be reduced in time.
"I'm hopeful that costs can come down sufficiently so that in the long term, wind can be a viable alternative to other generation sources," Loomis said. "But right now, the fuel of choice to generate our electricity is natural gas, because natural gas prices are so low that it's just the cheapest way to generate electricity at current prices."
A recent study found that extending the tax credit will allow the industry to expand to 100,000 jobs in just four years, while an expiration will cause the loss of 37,000 jobs, according to the American Wind Energy Association's website.
Jobs at turbine manufacturing plants would be in jeopardy without continued growth of the industry, Loomis said. Earlier this month, wind energy equipment manufacturer Siemens Energy Inc. announced it will lay off 615 workers in Iowa, Kansas and Florida, in part because Congress has not renewed a tax credit for wind energy.
"In order to keep those manufacturing jobs, you need to continue to build new wind farms," Loomis said. "Without the production tax credit and domestic demand for parts, I would think that you'd have a tremendous amount of consolidation — companies either going bankrupt or buying up other companies and things," Loomis said. "So from a pure employment standpoint, it dramatically reduces the amount of employment on the wind industry manufacturing side."
The Associated Press contributed to this report.