Upcoming Death of Tax Credit Threatens Wind Industry

There’s a bad breeze blowing through Arkansas’ wind power industry: The uncertainty of an important federal tax credit, which expires at the year’s end, is driving companies into a corner and bleeding jobs.

“We’re at a very perilous moment for U.S. wind energy,” said Peter Kelley, spokesman for the American Wind Energy Association. “We’ve had growth by leaps and bounds in the past few years just because there’s been a lot of demand for renewable energy, and there’s a tax credit.”

The tax credit is the magic bullet. It lets companies producing renewable energy pay a lower income tax rate by 2.2 cents per kilowatt-hour. Without it, the AWEA reported, the industry could shed up to 93 percent of its work force.

The credit was created in the 1990s, and hasn’t expired since 2005. Republican presidential candidate Mitt Romney has stated he would let the credit expire if he were elected, but state congressmen, including Republicans, have voiced support for the credit.

“I support a temporary extension of the wind production tax credit that is phased out over time, but I will continue to fight for fundamental reform of our tax system, because Americans need a simpler, fairer and flatter tax code that encourages job creation and allows us to compete around the world,” U.S. Rep. Tim Griffin, R-Ark., said in an emailed statement.

“The layoffs there have been more about the failure to extend the tax credit than anything else,” U.S. Sen. Mark Pryor, D-Ark., told Arkansas Business. “I think if we can get that re-established, we can get a lot of those jobs to come back.”

Pryor said he thinks the wind industry had been good for Arkansas, noting the state’s geography and its transportation infrastructure are well-positioned for moving the huge turbine parts.

“But I think what we’re seeing right now is the entire wind power industry, nationwide, is suffering because of the lack of the tax credit and lack of certainty,” Pryor said.

U.S. Sen. John Boozman, R-Ark., also voiced opposition to Romney’s stand on wind power.

“I think it’s something we need to talk about,” he told the Huffington Post in July. “I’m very much in favor of reinstating [the tax]. I do think that they don’t go on forever. I think we extend them over a period of time and then start to phase them out, but you don’t pull the plug.”

Gov. Mike Beebe, a Democrat, has historically supported the tax credit, and even Karl Rove, a high-ranking Republican strategist, is in favor of it.

Rove told The Associated Press in June he hoped after the presidential election “people say, ‘Look, let’s start making some priorities and find some things that we can agree on, and maybe one of them is the production tax credit.’

“It is a market mechanism, you don’t get paid unless you produce the power, and we’re not picking winners or losers, we’re simply saying for some period of time we will provide this incentive as we scale up and get improvements in technology.”

Kelley said he expected the credit to be renewed, but it likely will be at the very last moment.

Pryor said the Senate Finance Committee passed the credit a few weeks ago, but it hasn’t gone through the Senate or House.

“There’s going to be some opposition in the Senate,” Pryor said. “A few senators are opposed to wind power, but by and large most senators understand that this is a good source of electricity. Wind power will continue to play a role in electric generation in the country. I think the future’s actually bright.”

 

Losses by Number

The tax credit drove company expansion and made it cost-competitive with other forms of energy, and Kelley said that’s true even with natural gas reaching record low prices.

“Wind energy offers a fixed contract,” he said. “Utilities want to buy wind energy to serve as a hedge against cheap shale gas, which is historically volatile.”

But the gridlock in Congress is weakening what looked like a sturdy industry.

“In the midst of that, companies make decisions,” Kelley said. “They’re laying people off and hoping Congress can act swiftly enough.”

The local job loss started when Danish energy giant LM Wind Power announced in early August it was laying off more than 200 workers at its blade factory in Little Rock — 80 hourly employees, 14 salaried employees and 140 temps. That’s about half of its state work force.

Earlier this year, Mitsubishi announced it would mothball its planned $100 million turbine assembly plant in Fort Smith, which would have brought 300 jobs to the area.

The winds of uncertainty have been blowing across other parts of the nation, too. Hundreds of jobs have already been lost.

In August, DMI Industries of Fargo, N.D., announced it would lay off almost 400 workers in Tulsa and West Fargo, N.D., by November. Trinity Structural Towers said it would shift its resources away from its turbine tower-manufacturing facilities in Dallas.

And those were just the August layoffs: Gamesa, a Spanish wind power company, laid off 165 Pennsylvania workers in July; NRG Systems of Hinesburg, Vt., furloughed 30 of its employees between May and July; Vestas of Denmark laid off 182 in January; Iberdola Renewables of Portland, Ore., laid off 50 in January; and Windlogics of St. Paul, Minn., cut off 10 in July.

The AWEA reported that, if this continues, the country stands to lose about 37,000 jobs by the first quarter of 2013.