Riding the Wind

The temporary loosening of eligibility rules on federal subsidies for wind power projects appears to have had the desired effect, spurring billions of dollars worth of new wind-power investments.

Before last year, utilities had to make sure their projects commenced commercial operation by Dec. 31 in order to trigger a federal tax credit worth 2.3 cents a kilowatt-hour for the first 10 years of production. A deal between the Obama Administration and Congress that ended a budget standoff in December 2012 included a 12-month extension of the federal production tax credit (PTC) for wind projects and an adjustment in the subsidy so it kicks in as soon as a deal to build a new wind farm is signed.

Congress changed the subsidy language from a requirement that wind farms be “in production”–in other words, generating power–to “under construction,” meaning the utility could qualify if it started physical construction or reached an agreement committing to five percent of the project’s costs by the end of 2013.

Prior to this agreement, uncertainty over the PTC’s future had contributed to a significant slowdown in business at major turbine producers, forcing them to lay off hundreds of workers at their U.S. manufacturing facilities (it takes up to two years to develop and manufacture large wind farm projects). As a result of the 2013 subsidy language, several major utilities and giant turbine-makers like Vestas and Siemens scrambled to get their deals for major new projects signed and announced before New Year’s Eve.

Among the mega-deals announced as the deadline approached were a $1.9-billion project by MidAmerican Energy, an Iowa-based utility, and the long-awaited Cape Wind project in Nantucket Sound.

Siemens AG announced its U.S. plants, including a facility in Fort Madison, IA, will supply 448 giant turbines (with the capacity to generate 1,050 megawatts of power) as part of the largest single order for onshore turbines ever placed. At the announcement in Fort Madison, Siemens and MidAmerican execs were joined by local, state and federal officials hailing what they said was the largest economic development project in Iowa’s history. MidAmerican, based in Des Moines, is majority owned by Warren Buffet’s Berkshire Hathaway.

When the Iowa wind farm is completed in 2015, MidAmerican Energy will have generated more than 2.2 gigawatts of wind energy in Iowa since 2008.

Siemens Energy Inc., a Florida-based subsidiary of the German conglomerate Siemens AG, has two wind-power manufacturing plants in the U.S.: the turbine-blade production unit in Fort Madison, which opened in 2007, and a nacelle and hub manufacturing facility in Hutchison, KS. The Kansas facility will provide nacelles for the 448 Iowa turbines, while Broadwind Energy will supply towers from plants in Texas and Wisconsin.

On Dec. 23, Siemens and developer Energy Management Inc. announced a deal to commence work on the Cape Wind project, which will erect 130 turbines with a combined capacity of up to 420 megawatts in Nantucket Sound. Energy Management estimates the offshore wind farm will generate enough electricity to power about three-quarters of Cape Cod and its islands.

Danish turbine giant Vestas also increased production at its manufacturing operations in Colorado as a result of the 2013 revision to the PTC subsidy. Overall, industry analysts say the revision spurred utilities to sign a record number of Power Purchase Agreements for wind energy.

We wish we could tell you this good news will continue. Unfortunately, Congress did not act on another extension for the PTC, which expired on Jan. 1. Opponents to the subsidy–primarily friends of the fossil fuel industry–are lobbying to keep it from getting another extension: in November, groups led by the Koch brothers-funded Americans for Prosperity sent a letter to Congress urging them to let the PTC expire. The letter said the wind industry “has very little to show after 20 years of preferential treatment.”

We beg to differ. U.S. wind power has expanded exponentially in the past 20 years and the cost of wind energy has dropped by nearly 90 percent, making it competitive with coal. As we reported in our State Rankings Report last summer, about 13,000 megawatts (MW) of wind energy capacity was installed in 2012, nearly twice as much as in 2011, bringing the overall U.S. output to more than 60,000 MW generated by 45,000 turbines nationwide.

Congress should extend the PTC, not just for this year but for the next five years, and they should do it now.