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Are Wind Subsidies the Best Use of Taxpayers Cash?

By Brian Westenhaus | Thu, 03 January 2013 22:09 | 2

The U.S. taxpayers are in better than $16 billion dollars now and just got hooked for another $12.1 billion more.  That’s $161,333 per for 75,000 jobs.  Admittedly, compared to some government subsidy deals this looks cheap. (Roll Eyes)

Subsidizing wind energy surely should be at the end of the subsidy era.   The era is 20 years old now.

The subsidy locked up in the fiscal cliff deal only includes a one-year extension of tax credits for the wind-energy industry. The whole thing will be with us for recurring years to come.  The worst problem is no one has hard data to know if wind can ever stand on its own.

As noted on these pages just recently the idea that government can or should pick industrial backing isn’t working out well.  But wind energy must be given its due – the wind has energy, its harvested, and gets on the grid – at a rather dear price.  The business does work when big freebies to the investors is kicked in with a 2.2-cent per kilowatt-hour tax credit over the next 10 years.

There are other reasons to be suspicious beyond the direct costs. Wind’s advantage puts the other alternatives, plus natural gas, coal and nuclear energy at an economic disadvantage.

Related Article: George W. Bush: The Hero of US Wind Energy

Tennessee Republican Sen. Lamar Alexander points out an important point, “A better idea is to reduce the debt and increase research for solar, batteries, carbon capture from coal plants, more energy-efficient buildings, advanced biofuels and the disposal of nuclear waste,” Alexander wrote in The National Journal. “Then let the marketplace decide which fuels can produce enough clean, cheap reliable energy.”

The wind industry looks like the voice of reason.   Wind energy lobbyists, who descended on Capitol Hill in the final weeks of the negotiations, have suggested phasing out the credits over perhaps the next five years to create less uncertainty and avoid the annual negotiations.

Still, the new law offers more sense.  The production tax credit pays eligible projects 2.2 cents per kilowatt hour for the first 10 years of production, making the energy competitive with electricity generated by natural gas. The investment tax credit pays 30 percent of costs for small, community wind farms and offshore wind projects.

Lawmakers tweaked the eligibility requirements so that projects that begin construction in 2013 may apply for the incentives. Previously, projects had to be generating power by year’s end to qualify. That was an uncertain prospect that made it more difficult to attract financing, given the length of time allowed only being only 18 to 24 months and the complexity of building a wind farm.

Related Article: Solar and Big Oil Join Forces in Middle East

Rob Gramlich, interim chief executive officer of the American Wind Energy Association (AWEA), said in a prepared statement, “Now we can continue to provide America with more clean, affordable, home-grown energy, and keep growing a new manufacturing sector that’s now making nearly 70 percent of our wind turbines in the US.”

The AWEA said the deal agreed on by Congress would protect all projects that begin construction in 2013, even if they’re not completed until later.  That may or may not be a good thing.  Open-ended deals tend to be exploited in unforeseen ways.

Corn ethanol lost one of its subsidies last year and survives nicely.  There is still plenty of corn for both food and fuel.  There will always be plenty of wind, but the industry will never be what its worth until it gets its hand out of the public’s pocket.

The wind business has a lot of growing up to do and maturation would encourage more efficiency and better cost controls.  One day they might even figure out how to increase productivity, improve output and store power.  But with all the focus on needing the government freebie, the real work is going to be overlooked.

But congratulations are in order.  Wind’s lobbyists showed their power and got the short-term goal handled.  Now can management figure out how to stand up the business on their own?

By. Brain Westenhaus

Source: The Fiscal Cliff Tax Deal Props Up Wind Energy

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  • SA Kiteman on January 04 2013 said:
    Are Wind Subsidies the Best Use of Taxpayers Cash?
    HECK NO!

    For the same $28B we could have developed and certified Liquid Fluoride Thorium Reactors (LFTRs) and built between 5 & 10 GW of safe, clean baseload power. That power could now be creating REAL jobs, not make work subsidized avocations.
  • Leon LeMoine on August 26 2013 said:
    Automatic across-the-board budget cuts will take hold on Friday, affecting job growth, state education programs, environmental agencies, and women’s health programs. The sequester actually shares an important anniversary — with Big Oil tax breaks. It is not as well-known a date, but one type of deduction, the percentage depletion allowance, celebrates its 100-year anniversary today.
    Depletion allowances let oil companies treat the oil in the ground as capital equipment, and thus allows them to write off a certain percentage for each barrel that comes out. (See more here.)
    The year 1913 marked the first time a Big Oil subsidy was written into the tax code. The Revenue Act of 1913 allowed oil companies to write off 5 percent of the costs from oil and gas wells beginning March 1 of that year. (For reference, see pages 172-174 of the Act.) A century later, oil companies can now deduct three times this rate, at 15 percent, although the very largest companies no longer qualify. The percentage depletion subsidy also increases when prices are high, at the same time that oil companies enjoy greater profit. It can even eliminate all federal taxes for independent producers.
    A Center for American Progress report estimated that closing this tax break would save $11.2 billion over 10 years.
    President Obama has called on Congress to eliminate the percentage depletion allowance, along with a series of other tax breaks totaling $4 billion annually. Even Ronald Reagan once asked for the same in a 1985 speech on tax reform:
    “Under our new tax proposal the oil and gas industry will be asked to pick up a larger share of the national tax burden. The old oil depletion allowance will be dropped from the tax code except for wells producing less than 10 barrels a day. By eliminating this special preference, we’ll go a long way toward ensuring that those that earn their wealth in the oil industry will be subject to the same taxes as the rest of us.”
    However, congressional Republicans taking the lion’s share of oil and gas industry contributions have refused to close century-old loopholes in order to raise revenue. A number of specialized Big Oil tax breaks allow the top oil companies to cut their tax bill dramatically, sometimes half (or less) of the top corporate rate. It is not as if Big Oil is struggling: Last year, the five largest oil companies — BP, Chevron, ConocoPhillips, and ExxonMobil — earned $118 billion profit at a time when consumers paid record-high gas prices. This haul follows after a year the companies earned a record $137 billion profit.

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