Political clock ticking on wind industry tax support

People involved with the South Dakota wind industry have their fingers in the political winds, trying to gauge it.

That's because people with a vested interest in the wind industry are getting nervous if an extension of a federal tax credit will be approved before the end of the year. However, it could be too late for an industry that helps produce 22.3 percent of South Dakota's electricity.

"By the end of this year, you will see factories shut down and lay off workers if this doesn't get extended," said Ron Rebenitsch, executive director of the South Dakota Wind Energy Association.

Locally, the pressure is on to extend the credit. Mitchell Technical Institute's wind turbine technology program has about 60 students who are looking for well-paid jobs that might go away without the production credit.

"Kids at MTI have special skills but those jobs aren't going to be around if this tax credit is not passed," said MTI President Greg Von Wald.

Von Wald said the tax credit would provide a benefit to the government, not a burden, because of the jobs and other taxes being paid by those who work in South Dakota.

"That's one of the main misconceptions about the tax credit," he said. "If we can continue growth, it would create more in taxes than it would cost and create a net gain in taxes."

Created in 2009, MTI's wind turbine technology program has about 65 students enrolled and students can choose two tracks. Those who enter the one-year program will primarily work to construct new wind turbines, while those who finish the two-year program will service existing turbines.

"There will still be turbines to service for our two-year students but our one-year students will be in trouble because there won't be any new construction," Von Wald said, adding that these are usually well-paying jobs earning between $40,000 and $60,000 per year.

Von Wald, who also serves as the vice president of the South Dakota Wind Energy Association, pointed to Molded Fiber Glass Companies, which has a 325,000-square-foot complex in Aberdeen where 40-meter long blades are produced. He cited six students who have found jobs working for them and six more who are interning for MFG.

"There's a very real chance that those jobs will be gone if the production tax credit is not renewed," Von Wald said.

The damage might be already done. Representatives with the American Wind Power Association said plants will soon delay all orders for 2013 with the uncertainty regarding the credit. The AWPA is reporting layoffs are beginning in the industry because wind projects operate on an 18- to 24-month production cycle.

There have been a few projects that have already been slowed down. Spanish energy company Iberdrola Renewables canceled its SummitWind and Wahpeton Wind projects earlier this month. They would have created 500 megawatts of electricity near the Summit area.

"Most wind industry jobs are relying a lot on the production tax credit. There's so much uncertainty right now," Rebenitsch said.

What is it?

The Production Tax Credit (PTC) of 2.2 cents per kilowatt hour expires on Dec. 31. It reduces the federal income taxes of renewable energy projects based on electrical output. Eligible parties must generate the electricity and sell it to an unrelated third party. Nonprofit organizations, publicly owned utility companies and rural electric cooperatives are not eligible to use the PTC.

Separate bills in Congress would extend the tax credit through 2014; the House version would extend it to 2016. Both have reached the same stalled-out state in legislation and have yet to reach the floor.

The PTC expired before, in 2000, 2002 and 2004, and the amount of megawatts installed in the following years decreased by at least 70 percent each time. When renewed in 2009, the PTC was grouped in with the federal stimulus package. But the wind industry has never before been this big and there has never been more at stake, according to proponents.

The tax credit is different from those associated with gas or oil because those are permanent and has to be continuously renewed through bills by Congress.

"I think it should be permanent," said Matt McGovern, who is running on the Democratic ticket for a seat on the South Dakota Public Utilities Commission. "If it's not permanent, it becomes a lot harder for companies to make investment decisions without knowing where the credits will be."

Where Washington stands on legislation

There is one constant from the three South Dakota legislators in Washington: They all support the legislation that could keep the state's wind hopes alive.

South Dakota's two senators, Republican John Thune and Democrat Tim Johnson, have voiced their support but Republican Rep. Kristi Noem has taken that a step forward by co-sponsoring the bill in the House.

Noem is part of a group of freshman legislators who have written a letter to House leaders urging them to extend the PTC, gathering 18 signatures in support of the legislation.

"They're not already being affected because of an expiration date and they're seeing losses and it puts them in a tailspin by having this uncertainty already facing them," Noem said in an interview with The Daily Republic.

"For me, we have a special situation with the wind industry and we need to put this back into place while we work on comprehensive tax reform," he said.

There is also a debate on how long the credit should be in place. Thune is working to get an extension this time around, he said, but favors eventually phasing out the PTC.

"This is the best approach to provide certainty to an industry that has had to deal with annual renewals that hinder the ability to plan and invest in the future," Thune said in an email.

Thune has met with the AWEA about building support with in Congress and hopes his role on the Senate Finance Committee will help the bill along.

"I am hopeful that Congress will act sooner rather than later considering that jobs relating to wind energy production are hanging in the balance."

Johnson said he hopes the bipartisan support will carry the legislation through the process.

"There are those who say that wind energy is a subsidy but they ignore the oil and gas subsidies that have existed for years and years," Johnson said in conference call with reporters Wednesday.

He said he thinks there's a good chance the PTC could be passed in what is known as the lame duck period after the November elections between the outgoing and incoming Congress. That won't be good enough for Rebenitsch.

"There's a general sense is that they're going to extend these extenders during the lame duck session but that's too late for a lot of jobs and a lot of projects," Rebenitsch said.

President Barack Obama has supported extending the credit, as recently as a May 24 when he spoke to wind blade factory in Newton, Iowa. He also put "Invest in Clean Energy Manufacturing" on his White House website "To-Do List" for Congress before the Aug. 6 summer recess.

Republican presidential candidate Mitt Romney opposes the tax credits for wind and solar energy, writing a March editorial in the Columbus (Ohio) Dispatch that "In place of real energy, Obama has focused on an imaginary world where government-subsidized windmills and solar panels could power the economy. This vision has failed."

"It's something that has been passed before by presidents from both parties and by congressmen from both parties. It's really important for South Dakota to continue investing in wind energy and creating jobs," said McGovern, a longtime advocate for the state's wind industry.

‘2013 is going to be a bust'

South Dakota's wind industry has room to grow. A study by the PUC figured the state has the wind capacity to produce three million gigawatt-hours annually.

Rebenitsch said there's a general expectation the PTC will pass because it has over the last 20 years. He said he's been in constant contact with Noem, Johnson and Thune and the response has been good.

"2012 is going to be a great year for wind across the nation. 2013 is going to be a bust without the PTC," said Rebenitsch, who worked for 35 years for Basin and managed the development and construction of the Crow Lake Wind Project.

He said without the PTC, the 12 to 15 full-time employees who work there never would have had jobs.

Von Wald said he's been pleased with the steps Noem has taken in the House to help gain traction for the bill but he said he wishes South Dakota's Senate leadership would step up like Iowa senators Tom Harkin and Chuck Grassley to co-sponsor the bill.

"We need leadership to step up. [Sen. Mark] Udall from Colorado has supported it and the wind industry is more important to South Dakota than it is to Colorado," Von Wald said.

Noem acknowledged that there are some congressional districts that don't have wind and she'll take the opportunity to educate some of her colleagues in the House on why it's important.

"When we allow things like the tax credit to expire, we put a lot of uncertainty out there for a lot of families in South Dakota and it also hurts investor confidence in the industry and the manufacturers and their workforce suffers. It's devastating for states like ours," she said.

Von Wald said he'll continue to try to influence the decision-makers to ensure the state's wind future.

"We need to make it clear that this bill is important to our economy and to our state's future," he said.