Wind headed for a fall even with an extended credit

Even with an extension of a tax credit for wind development, installations will fall precipitously in 2013, a renewable energy investment expert told a Senate committee.

And if the production tax credit (PTC) is allowed to expire at the end of 2012, wind development will practically disappear next year, said Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance, a market research firm.

The Senate Subcommittee on Energy, Natural Resources, and Infrastructure held a hearing Tuesday to investigate the impact tax credits has had on renewable energy investment and manufacturing employment.

With the credit in place for this year, wind installations will approach a previous record, as developers try to beat the deadline for new projects to be put in service this year to qualify.

“Bloomberg New Energy Finance forecasts approximately 9,500MW of new power-generating capacity will be installed in 2012 but just 500MW will be installed in 2013. That would see the industry go from registering one of its best years on record in terms of installations to its worst since 2004,” Zindler said.

The PTC has expired three times in the past 12 years, each time causing project development to crater until it was restored.

Zindler said the global market for clean energy investment is marching strongly ahead, even with policy uncertainty plaguing U.S. industry. He said last year, the industry set a record, attracting $260bn in new outside investment, up from $54bn in 2004. “In the fourth quarter of last year, we counted the one trillionth dollar of new investment in clean energy.

“If there’s a single theme that can be discerned from this it’s that where supportive, clearly defined policies are implemented, private capital follows,” he added, citing trends in Germany and China.

But companies depended on relatively stables policies in recent years to expand their wind manufacturing footprint. Now, the U.S. has over 13GW of final turbine assembly capacity.

One such company is Leeco Steel, whose vice president for wind energy, John Purcell, testified that wind is a significant part of the company, supplying turbine tower manufacturers and their suppliers in 12 states.

“Leeco Steel first began delivering steel plates and fabricated plate products into the wind industry in 2004. Revenue from the wind industry now accounts for nearly 40% of our company’s total revenue,” he said.

With stable policy and the PTC, he said that overall, the wind industry has 12 tower factories, 10 of which were added since 2002.

“Taking an average of 250 employees per factory, that is 2,500 new good paying jobs that were created in a very short amount of time within our supply chain alone. This does not take into account the thousands of additional jobs that exist in the supply chain that supplies goods and services to each of these 12 factories,” Purcell said.

Further expansion at Leeco may not move forward, he added.

But Benjamin Zycher, a visiting scholar at the American Enterprise Institute, said the low energy content of sun and wind are an inefficient use of capital, and that subsidies should be eliminated. He also said the overall economic impact of subsides are a negative, despite the perceived job creation.

“The premise that expansion of renewable power will yield an increase in ‘green employment’ confuses benefits for a particular group with costs imposed upon the economy as a whole, and fails to distinguish between employment growth in the aggregate and employment shifts among economic sectors,” he said.

And the emergence of cheap natural gas only makes matters worse.

“The market difficulties faced by renewables are likely to be exacerbated by ongoing supply and price developments in the market for natural gas, which will weaken further the competitive position of renewable power generation. At the same time, subsidies and mandates for renewables impose nontrivial costs upon the taxpayers and upon consumers in electricity markets,” Zycher added.

“The upshot is the imposition of substantial net burdens upon the U.S. economy as a whole even as the policies bestow important benefits upon particular groups and industries, thus yielding enhanced incentives for innumerable interests to seek favors from government.”

The argument will be played out in the large political context, as moves to extend the PTC beyond 2012 are still afoot in Congress.