The wind energy industry in the United States is at a very delicate place in its development. While the price of wind energy is now on par with other fossil fuels, the profitability isn’t yet there. That’s why the Production Tax Credit is so important to the industry.
The fossil fuel producers have for a very long time enjoyed the benefits of industry specific tax incentives, such as the Oil and Gas Excess Percentage over Cost Depletion – Internal Revenue Code, Section 613.
This permanent provision in the tax code allows independent producers and royalty owners to deduct 15% of gross income earned from oil, gas and oil shale deposits.
The nature of this tax incentive is nearly equivalent to the wind energy PTC, except that this one has been made a permanent provision in the tax code for fossil fuels. It never expires.
The current strategy of time-limited extensions to the renewable energy PTC is dysfunctional. There is no planning behind the expiration timetable, and the annual expiration of the PTC doesn’t serve any specific goal.
The on-again-off-again uncertainty of this approach makes it a very chaotic incentive for the investment world, and this creates an obstacle to the very purpose of the incentive — to encourage commercialization.
In 2008, the U.S. Department of Energy, in their now famous “2030 Report”, established a clear stretch goal for the wind industry.
The report carefully looked at all of the implications of achieving 20% of the nation’s electrical power from wind energy by the year 2030. Ambitious, to be sure.
We know that to achieve that goal the industry would have to step up to a level of manufacturing, training, planning, permitting and installation never before achieved anywhere in the world.
I won’t go into the numbers here, but it would require an enormous amount of new effort in a relatively short time.
But, let’s use the report as a goal (because it was very thoroughly studied), and let’s align the tax incentive to the meaningful pursuit of that goal.
So, rather than arbitrarily limiting the PTC to one or two or five years, let’s rewrite the PTC to remain in place until a certain level of capacity is achieved. If our national goal is 20% wind, then write the PTC to remain in place until we achieve 20%, or some significant portion of that.
The biggest advantage of this approach is that we can all calculate pretty easily how much domestic manufacturing we should create with the assured certainty of this tax incentive.
If the industry knows that the PTC will provide a reasonable profit margin for some number of megawatts of new wind energy, then it will be a pretty simple investment calculation to know how many turbines will have to be manufactured, how many factories will be needed throughout the entire supply chain to build them, and most importantly how many skilled jobs this will create. The DoE report detailed all of this very thoroughly.
What I propose is a more sensible PTC that is better aligned with the nation’s priorities.
The government shouldn’t offer incentives that are established against meaningless deadlines, but should rather establish incentives that support a plan to achieve a measurable outcome.
In this way, the eventual retirement of the incentive will always be known and will not come later as a surprise.
I would like to urge the American Wind Energy Association to consider this approach as they lobby Washington for the next PTC extension.
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