Fiscal Cliff Deal Saves Big Wind for Another Year

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wind turbineThe “fiscal cliff” agreement was not only low-lighted by a wholesale surrender on taxes and spending by the Republicans, but also featured special favors and breaks for recreational industries like film production ($430 million) and motorsports ($70 million), as well as the sector that has been oft-criticized since President Obama entered the White House: renewable energy.

Specifically, while nothing new came through for often-bashed electric automobiles, tax credits (all continuations of credits that were set to expire) were extended to plug-in motorcycles. Buyers are allowed to deduct from their tax bills 10 percent of the cost of the two- (or three-)wheelers, or $2,500, whichever is less. This parallels the $7,500 federal tax credit for four-wheeled electric cars such as the Chevy Volt and Nissan Leaf. The breaks are projected to cost taxpayers $4 million over the next two years.

The cliff aversion perversion also delivered for the biofuels industry. A $1.01-per-gallon production credit was extended for cellulosic biofuels, which now also includes fuels manufactured from algae, and a $1.00-per-gallon biodiesel credit was continued through 2013. Together these credits are expected to cost taxpayers more than $2.26 billion over the next ten years.

Other credits will continue for energy efficiency in homes and appliances, but the big enviro-agenda item that was extended through 2013 was the wind energy production tax credit. The break was considered highly endangered and drew an enormous lobbying effort by the American Wind Energy Association, and had lost on at least five previous Congressional votes in the past 18 months or so. The 2.2-cent-per-kilowatt-hour credit will cost the government another $12 billion in lost revenue.

The industry has whined that without the tax break, it is no longer viable, which ought to speak volumes. Like electric cars and solar energy, wind power has been around for over a century, yet has never found a way to generate enough electricity to meet demand on more than a minimal scale. If it was ever going to work on a mass scale, it would have done so long ago.

And Big Wind already enjoys substantial benefits from government. Thirty states have in place mandates that require utilities to purchase renewable energy, so ratepayers are forced to pay for the higher-cost electricity. The requirements have spurred power companies to enter into purchase agreements with wind energy generators, bound to contracts that last as long as 20 years. Only government could force anybody to buy a product that is next-to-worthless, especially for that long.

Wind energy reaps billions of dollars more thanks to federal and state investment incentives, research and development grants, as well as other tax breaks. Among those is the ability to accelerate depreciation on renewable projects they invest in, which former Reagan administration energy official Glenn Schleede outlined in 2011 in a letter to Virginia Gov. Bob McDonnell. Among the benefits are freed up cash flow that can be used for other purposes, with capital cost of the projects – including equity and debt –deductible from otherwise taxable income. Also, the income basis upon which wind project owners (and their business partners) are subject to corporate income tax is reduced.

All the government renewable energy breaks are the reason utilities like Duke Energy went on a wind (and solar) farm buying spree over the last few years. The Department of Energy provided a $22 million grant to Duke for its Notrees Windpower Project in Texas, more than half the estimated $43.6 million cost for the 20-megawatt energy storage experiment. Examples of other Duke renewable “investments” based upon taxpayer help included: 100 wind turbines from GE and 1,000 megawatts of wind assets in Texas (Dec. ’07); a 20-year commitment to buy solar power from SunEdison (May ’08); the purchase of wind company Catamount Energy (June ’08); and so on, with announcements of many more alternative energy projects continuing to the present.

(Soon-to-be-former) Duke CEO James Rogers told energy expert Robert Bryce the reason why he moved so aggressively into wind energy is because the projects “earn returns on equity of 17 to 22 percent,” according to Bryce. So continuing the tax credit enhances the bottom line of the largest public utility in the country, while customers pay higher prices for their electricity.

As for the wind energy companies, even with the subsidies and mandates, their prospects have not been good lately. About a year ago the North American operations of Spanish company Iberdrola Renewables announced layoffs of about 5 percent of its U.S. workforce, with about half the cuts coming at its U.S. headquarters in Portland, Ore. Besides the anticipation of tax credits possible expiration, the firings were blamed on declining demand, an overloaded grid, and cheap natural gas.

And Denmark-based Vestas Wind Systems – also with U.S. operations in Portland – announced last January it would lay off 2,335 people worldwide (which included 182 in the U.S.), and threatened an additional 1,600 American jobs “if Congress doesn’t extend tax breaks for renewable energy.” Vestas received about $51 million in U.S. tax credits in 2010.

In August several more wind companies announced hundreds of cutbacks. According to renewable energy Web site Ecoseed, “when the expiration of the production tax credit was allowed (in the past), the industry saw installations dropped between 73 and 93 percent with corresponding job losses.” Obviously the “green jobs” are almost solely attributable to government subsidies, not the worthiness of wind power to the general public.

Remember that the “investment” is intended to fight the harms from global warming, a phony excuse used to perpetuate subsidies for wind and solar, which have no effect on the planetary temperature. The “fiscal cliff” gave Congress and the president another scare tactic to reroute taxpayer money to their favored industries.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.