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

With the announced closure of Nordex USA’s wind turbine plant in Jonesboro, it’s starting to look like Arkansas’ wind energy industry didn’t survive the election.

But proponents say there’s still hope both in the state and the nation — provided that subsidies stay in place.

Historically, wind has depended on the Production Tax Credit, which allows companies producing renewable energy to pay a lower income tax rate by 2.2 cents per kilowatt-hour. The policy expires every one to three years.

The credit has traditionally had bipartisan support, but that didn’t stop it from last year being mired in Congress’ agonizing fight to agree on a federal budget.

On Jan. 1, the budget debate finally resulted in the credit being renewed, but only for one more year.

“I support the extension and I’m glad it went through, but I just couldn’t vote for the [budget bill],” U.S. Rep. Tim Griffin, R-Ark, said in January. “I don’t support it permanently, but the federal government has intervened in the market and given credit over the years, and to take it away all at once and not give time to adjust is not the right thing to do.”

When Nordex announced its closure, the company cited uncertainty in the tax credit situation as one of its reasons. The amount of money the industry saves on the credit isn’t clear, but according to the American Wind Energy Association, that uncertainty before Jan. 1 resulted in a 100 percent drop in installation projects between 2012 and 2013. That’s a big problem when it can take up to two years to plan and build a wind farm.

“That’s not a way to run a business or an industry,” said Peter Kelley, vice president of public affairs at AWEA, which is concerned mainly with creating a predictable business environment for the wind industry. “As it has been, the main request of Congress is to do something to avoid the boom-bust cycle. But long term, the industry is going to be a vital sector of the electric power industry and the overall energy industry, as it already is.”

Behavior from legislators like Griffin prompted Gov. Mike Beebe to blame the Nordex closure and other issues in the wind industry almost entirely on Congress.

“The governor has a good point,” said Grant Tennille, executive director of the Arkansas Economic Development Commission, which has pushed millions of dollars of incentives into attracting wind companies into the state.

More: Grant Tennille says the wind industry in Arkansas is far from blowing away.

Congress “essentially failed to follow through on that promise in a timely way,” Tennille said. “There is recognition within the industry and within the larger policy-making community that, for some period of time, there will need to be a subsidy for wind to be able to compete.”

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.”