Tuesday, January 21, 2014

Is This Really the End for the PTC? Legislators from Coal Producing States Hope So

If you want to know who killed the the wind production tax credit (PTC) you need look no further than a map of coal producing US states. After legislators failed to extend the PTC in 2013 a lot of people were eagerly waiting to see what would happen when Congress reconvened in the new year. In previous years the PTC has been saved by last minute action or retroactive revival. So far this year legislators have done nothing to rescue the PTC from the abyss. Until December 31, 2013, The PTC provided 2.3 cents per kilowatt hour. As it now stands, all wind plants starting construction this year will not be eligible for a federal government credit.

The PTC has been around since 1992 and it has helped wind energy to grow substantially in the US particularly in the last five years. From 2008 to 2012 wind power almost tripled going from from 1.3 percent of the nation's electricity production to 3.5 percent.

The PTC combined with technological innovations have helped to cut the costs of wind power by over 40 percent in the last four years. Today wind energy is cheaper than coal, not to mention a lot cleaner. Sadly coal still provides 37 percent of the nation's energy demands. Unlike wind power, coal causes air pollution and contributes to climate change. Even with historic growth and significant price declines, coal is still 10 times bigger than wind.

Who do we have to blame for the demise of the PTC? Predictably, Lamar Alexander, the Republican Senator from coal producing state of Tennessee along with the vast majority of Republicans who simultaneously oppose the PTC while supporting oil subsidies.

However, there are also some prominent Democrats who can take some the blame, first and foremost is Sen. Max Baucus. By way of an explanation, he is a Democrat from Montana, the state which has the most coal reserves in the US. Baucus could be mistaken for a Republican as his tax reform proposal killed many renewable energy subsidies. However what distinguishes Baucus from his Republican counterparts is his proposal to replace the PTC with provisions to reduce greenhouse gas emissions (GHGs).

In a move that may be designed to get Baucus out of the country, President Obama has just named him to be the Ambassador of China. This will almost certainly put Baucus' tax reform proposal in doubt.

Other Democrats also contributed to the death of the PTC. most notably Senator Joe Manchin from the coal producing state of West Virginia.

According to the Department of Energy, only gas is cheaper than wind (the DOE says that the average cost of natural gas from a new plant in 2018 will be 6.7 cents per kWh, compared with 8.7 cents for wind, 10 for coal and 11 cents for nuclear power, offshore wind comes in at 22 cents per kWh).

In the 29 U.S. states which have adopted renewable energy targets, wind will continue to grow. While the death of the PTC will not kill wind power, it will certainly curtail its meteoric growth.

While lawmakers from coal states are trying to undermine federal government support for wind energy, those from windy states in the northeast and central plains want to keep the PTC because it provides investment and jobs.

Senator Sheldon Whitehouse, a Democrat from Rhode Island hit the nail on the head when he said, "You can't expect to take away support for wind energy while you're also protecting all of the various subsidies that flow to fossil fuel energy...and you particularly shouldn't do that when other nations are affirmatively investing in wind energy technology, because they see it as a future technology that they want to own."

The uncertainty over the future of the PTC and the absence of a sustainable energy policy saw the building of US wind farms decline in 2013. Now for the first time in a decade, builders of wind farms cannot count on the PTC. In the absence of government support, wind is likely to grow even slower in 2014 than it did last year.

While wind power may be able to stand on its own without government help, the question is whether they can keep growing at such a phenomenal pace. The answer is almost certainly that they will not.

Although it is looking grim for wind power in 2014, we should not be too quick to write the PTC's obituary, there is still hope that it could yet be resurrected.

© 2014, Richard Matthews. All rights reserved.

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A Condensed History of the Production Tax Credit (PTC)
The Growth of Global Wind Energy
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Top Ten Wind Power States in the US in 2012
Wind and Renewable Energy in Europe: Problems and Solutions
US Wind Energy Doubles and Eclipses Natural Gas in 2012
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Obama Administration's Wind Energy Leases
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US Wind Energy Market Review and Forecasts (2012)

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