Section 1603 grant extension: Just Say No

There's desperation on the Hill.

The wind industry is once again pressing Congress for a last minute extension of the Section 1603 subsidy.

And why not? 'Tis the season for giving and the approach of "Ask and ye shall receive" has worked pretty well for the industry so far, especially with a contingent of members happy to be led around by any entity cloaking itself in 'green'. Who better to do the leading than the American Wind Energy Association ('AWEA'), the trade group increasingly dominated by wind turbine manufacturers -- most of whom are headquartered in Europe and Asia. Any reasonable assessment of the 1603 grant program would be lost entirely on this crowd but there are facts that make any discussion of an extension foolhardy.

High Cost: The treasury reports it's already distributed $9.6 billion in cash grants during the period from 2009 to October 31, 2011. Of this, 80% ($7.6 billion) was awarded to wind developers. Since the grants are not public until projects are placed in service, taxpayers can not know the true cost of 1603 until 2014 or later. Based on projects currently under construction, total outlay for wind alone will reach nearly $20 billion. This is without an extension. If Congress agrees to extend 1603 by 1 year, this figure would be much larger. Remember, we are borrowing 40 cents on every dollar to pay for this program.

Exaggerated Job Claims: The wind industry insists 1603 is essential for creating jobs but this claim is not supported by the facts. It takes only 0.1 jobs per megawatt to operate a wind facility. Of the 12.3 gigawatts installed with 1603 funds, about 1200 permanent jobs were created. Most of the 75,000 jobs reported by the industry are temporary construction positions as evidenced by the number of  jobs lost in 2010 when building slowed (10,000 jobs were lost).

Low energy production: The Treasury assumes that 1603-funded wind projects operate with a 30% capacity factor but this is not accurate. Five wind facilities in New York, for example, received $300 million in grants and operated 25% BELOW this level in 2010. Section 1603 imposes no performance criteria. Instead, the program substitutes government largess for private investment, but with NO accountability taxpayers are left carrying all the risk.

Inflated Turbine Pricing: Upfront cash grants provide minimal incentive to negotiate lower prices with suppliers. In fact, the higher the capital costs the more 1603 money available. With turbines representing 55+% of project costs, manufacturers are encouraged to keep prices high.

There are cheaper, more effective opportunities for achieving clean energy goals that will also help the economy. Direct cash outlays go in the wrong direction by rewarding higher construction costs, higher energy pricing, and marginal to poor performance. It's time for Section 1603 grants to expire.

DEC 7 2011
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