Renewable-Energy Subsidy Could Expire This Year | Credit expiration crimps state's wind power development
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Jared Rodriguez, director of product development and marketing at Emergent Energy Group in Natick.
It’s hard to overstate the significance of the federal production tax credit (PTC) for the wind power industry.
The three times in the past decade that it has been allowed to expire, the installation of new wind capacity across the country dropped an average of 81 percent the following year.
“The PTC causes a stop and go in the wind industry,” said Jonathan Ricker, CEO of Mass Megawatts Wind Power Inc. in Worcester. “That’s how come you probably saw a 48 percent increase in the wind power industry last year but some years you probably see nothing.”
The credit is set to expire again at the end of this year, and many in the wind industry say it now looks unlikely that Congress will renew it before then.
But this year may mark a change in the level of concern that surrounds the issue. Those in the wind power industry in Central Massachusetts say they’re not living in fear of another big dropoff.
2-Cent Solution
The PTC was created in 1992 and provides 2 cents for every kilowatt-hour of electricity produced by wind, solar, geothermal or “closed loop” bioenergy facilities. That’s a big deal to wind power companies.
“A lot of these projects depend on it for whether they’re profitable or not,” Ricker said.
He said nationwide a number of wind power projects are rushing to get up and running before Dec. 31 so they’ll be sure to get the credit. But locally, he and other wind power executives said it’s less of an immediate issue since there aren’t any projects scheduled to be completed near the start of next year.
Don McCauley, president of Minuteman Wind in Framingham, said he can imagine a scenario in which the PTC expiration would cause problems for his business. The company is currently working on a 12.5 megawatt plant in Savoy. Since it’s still in an early stage of development, he isn’t yet dealing with the details of financing the project. But if the credits aren’t renewed, he said, it would definitely alter the financial picture that he could present to potential financers.
Still, McCauley isn’t too worried. Why? He’s pretty confident that the credits will be renewed, probably in early 2009, and made retroactive to the start of the year.
“They’re too important to the renewable energy industry to just abruptly lapse,” he said. “We’re operating on the assumption that they’re going to be in place.”
That’s the assumption that most wind energy executives in the area seem to be operating under, and they say the financers they talk to feel the same way.
Jared Rodriguez, director of product development and marketing at Emergent Energy Group in Natick, said the recent shift in the public perception of renewable energy has been amazing. With the cost of oil hitting peaks that have shocked many over the past year, and with the connection between fuel costs and food prices now so obvious, he said politicians are in no position to snub the renewable energy industry.
“I think really if the federal government allowed it to expire there would be an uproar,” he said.
Broken System?
Still, the PTC expiration deadline has many questioning the efficiency of a system that puts funding into doubt every few years.
“It would help in the development of renewable energy projects if they could be renewed for a longer period of time,” said Dave Touhey, corporate communications manager at the Massachusetts Municipal Wholesale Electric Co., which is working with a cooperative of 14 communities, including Ashburnham, Boylston, Groton, Holden, Paxton, Shrewsbury, Sterling, Templeton and West Boylston, to build a 15-megawatt wind plant in Western Massachusetts.
One important reason to keep funding for renewable energy as stable as possible is competition for dollars that could easily flow to energy projects in other countries, according to Edward R. Terceiro, who works on renewable energy issues in his role as executive vice president of Mount Wachusett Community College in Gardner.
“A lot of venture capital money is floating out there both in this country and in other countries that is looking for a home,” he said.
The more assured investors are that energy products will get government support, the more likely they are to choose the U.S. as a home, he said.
Others say a better path than extending the PTC for longer periods would be junking it altogether in favor of something completely different. McCauly said that, while the solar industry probably needs the credits to remain viable, wind is getting to the point where it may no longer require the support. Instead, he said, the federal government may want to embrace a “renewable portfolio standard,” which would require energy companies to increase the portion of their electricity produced with renewable energy. Massachusetts and 12 other states already have such programs, according to the Union of Concerned Scientists.
“In light of the government budget difficulties, it’s going to be difficult on a sustainable basis to keep subsidizing wind production through the tax credits,” McCauly said. “I think ultimately the policy needs to evolve more in the direction of the RPS approach.”
That would shift the obligation for supporting renewable sources to energy suppliers, and, thus, consumers, he said.
Meanwhile, Philip Giudice, commissioner of the Massachusetts Department of Energy Resources, said the state is doing what it can to make up for any uncertainty about the federal PTC. The state can’t match the credit’s dollar value, he said, but it is using tools like the recently enacted Green Communities Act to support the renewable energy industry. Among other things, the law requires utilities to enter long-term contracts with renewable energy companies and helps the owners of green facilities sell power back onto the grid at favorable rates.
“The government’s really working at all the levers we have to make a much more energy efficient future,” Giudice said. “We’d love it if the federal government was a little more productive partner with us on this.”
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