Monday, January 14, 2013

Wind Energy Boosted

When you look up while driving through Southern Ontario, all you see in windmills dotting the horizon. It's a nice break from the family farms and forests all around them. But it is also a sign of the times. Something that the next generation will take for granted, while this one views them as a sign - no, a symbol - of progress. Ontario will have closed all of its coal power plants by the end of the year and the US is making great strides towards moving away from the by-far dirtiest form of energy there is as well.

When the fiscal cliff deal was signed, I kept digging through news stories to find one piece of information: whether the wind energy tax credit was extended. The rest of the deal was going to be a moderate package - raising taxes starting at $250,000 or at $450,000 was not going to make a big impact on the nation as a whole - whereas the wind tax credit would reap benefits for decades.

Wind energy has gone through a boom-bust cycle this last decade as Congress decides to extend or withhold the tax credit. At 2.2 cents per kilowatt/hour, the tax credit can cover about 1/3 of the costs of all new wind construction. Making it as cheap or cheaper than all other dirty forms of energy. When you take externalities into account, it became a no-brainer to build wind instead of anything else.  As such, it is no surprise that  about 1/3rds of all new energy capacity added to the grid was wind.


I found my answer. I was pleasantly surprised  Congress not only extended it, but they did one better. They improved it. Both parties - no matter how large their disagreements on just about everything else - both support clean, domestic energy. Republicans get behind it because the policy brings the US a step towards energy independence, while Democrats support it for the environmental benefits. It has no natural opposition, except perhaps the dying coal industry. Yet the wind power industry, like all others, gets caught in the crossfire between the two parties. This time it didn't.

The Wind Production Tax Credit was changed to have a larger impact. It formerly said that qualifying applicants for the tax credit would have to finish construction and start operating in the given year. Since there was a rush to start operating by the end of 2012 in order to qualify for a perhaps lapsing tax credit, many projects were cut short. Wind farms ended up being smaller than originally planned to meet the deadline. No new plans were on the horizon because of the uncertainty.  A year is not enough time to plan and construct a large wind farm from scratch. Simply extending the policy for a year would have had next to no actual impact (with the exception of those who missed the 2012 deadline).

Congress changed the policy. Now you only have to begin construction in 2013, instead of ending it, to qualify. One would expect a huge boom in wind farm planning this year, along with a massive construction effort beginning in December in order to qualify.  The incentive is now to build very, very large wind farms which take years to complete construction. It's a paradigm shift in the right direction, but it still falls a step short.

In the early 2000s, Congress passed a long-term trade bill against China that increased import tariffs. Despite the fee increase, imports increased astronomically. US manufacturing started to move to China in large numbers, thanks to the new laws, and then import the products back to the US. They happily paid this new tax. Why the boom? Because it became a standard cost of doing business. Before this, tariffs were decided on an semi-annual basis and companies did not want to venture the risk of being caught overseas, if the tariffs became too high. The new law created certainty.

The Wind Industry is lobbying for a long-term bill that would slowly phase out the tax credit. They hope that this policy certainty will set off a prolonged boom in wind power, just like it did with Chinese imports. That would be good for everyone involved, including the planet itself.

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