Wind Supporters Link Subsidies to Survival of Arkansas' Wind Energy Sector

by Luke Jones  on Monday, Jul. 15, 2013 12:00 am  

Windmills like this one near Newport aren’t common in Arkansas, but making the components was expected to be big business here. (Photo by Mark Friedman)

Nevertheless, Kelley said, the country is still ahead of the U.S. Department of Energy’s schedule to have wind represent 20 percent of the country’s power grid by 2030.

“In general, the wind industry is still a growing part of America’s energy mix,” Kelley said. “If you look at the overall capacity, it’s steadily rising. It’s around 4 percent of the grid, and Arkansas has a big piece of that story.”

But “to keep us on track is going to take some stable policies, so for that we’ve got to have a predictable business environment.”

“You cannot ask companies to invest hundreds of millions of dollars without a clear policy position on their industry,” Tennille said.

Phasing Out

Another part of the uncertainty of the credit is that some legislators — like Griffin, again — have stated that the wind industry favors phasing out the credit, especially if tax reform is carried out.

“I think everybody realizes that, long term, the subsidy is not viable,” Tennille said. “At some point, wind has got to begin to compete on its own. And it will. The question is, when do you have enough momentum to be able to phase that [tax credit] out and allow that source to stand on its own?”

Tennille pointed out that other established fuel sources have received huge and ongoing subsidies.

“Part of the idea in providing the tax credit to wind was to give the industry and to give the project leaders enough running room to get established,” Tennille said.

“We did have an analysis of what it would look like if the wind tax credit phased down,” Kelley said. It might work, Kelley said, if the rest of the worldwide wind industry was also phasing out its incentives. In that case, it would be a six-year process, going through two product development cycles and bringing down the cost of U.S. wind to compete with other energy sources.

“But in the real world, we’re not going to get tax reform,” he said. “So what is the one thing that’s working to drive this new energy sector? This production tax credit. And we’re back to square one.”

“Without a clear energy policy that is well-defined, that has some life to it, some longevity to it, it’s hard to ask these companies, again, to go out into capital markets and raise millions of dollars and risk it,” Tennille said. “But again, it will come. Because it works. And once you get the turbines built, the long-run incremental cost of that power falls away to nothing. It’s not unlike the pharmaceutical industry. The first pill costs you $600 million, but the 7 millionth pill starts to get down to the level that seems more reasonable.”

Overall, Tennille stressed that the wind industry shouldn’t be judged based on its current climate.

“In the long run, I think it will prove to have been a smart decision,” he said. “But it’s fair to say that at this moment in time and history, we’re taking some loss.”

 

 

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