Time to cut our losses on big wind

Lisa Linowes|November 18, 2016
USATaxes & Subsidies

After billions in public hand-outs spanning nearly four decades, big wind has never been able to stand on its own and there's no reason to believe this will change. ...If yanking the handouts causes the industry to flat line then so be it. The US has elected a businessman at the helm who understands what it means to cut your losses. It’s time we did exactly that!

Elections matter! 

Last week, untold thousands of Americans in deep-red counties took a stand. After eight years of “bureaucracy knows best” and the abuses that followed, voters shouted ‘NO’ to the wanton march of government-funded industrial wind turbines destroying the landscape and threatening their communities. The Trump victory will finally put an end to big wind’s vice grip on Washington. 

And you can bet the wind sector is in full panic mode. But don’t expect to hear about it in the press. Instead, we’ve been barraged with stories about wind’s unstoppable success, its popularity with windy red-state republicans and how the busy new administration couldn’t be bothered with tax credit programs that are already set to phase down. Within days of the election, one unnamed “major Trump financial contributor” claiming to have the inside track on the transition reassured folks that “everything with renewables continues; the credits will remain in place.” 

Sorry. We’re not buying it. And neither is Continental Resources Inc. chief Harold Hamm, Trump’s chief adviser on energy issues who argues that subsidies for renewable energy like solar and wind, and credits for electric cars, should be eliminated.

There are 2 very good reasons to think a Trump administration will act quickly to gut the subsidies. 

1.    End the Abuse.

Trump has been consistent in wanting to end the abuses rampant in Washington. One obvious example is the IRS and its administration of the wind tax credits.   

Since 2013, when Congress extended the wind energy production tax credit ("PTC") and relaxed the terms upon which projects qualified, the IRS has issued five separate guidances explaining how it will interpret the term ‘begin construction.' In each case, the guidance further relaxed the eligibility requirements to a point where Congress’ PTC phase-out has essentially been nullified allowing full-PTC eligibility to be extended to many thousands of wind megawatts that would otherwise have earned a reduced credit. 

Under the latest guidance released this year, a single worker equipped with a hand shovel digging in the vicinity of a proposed wind turbine foundation would be enough to meet the physical work test requirement. There is no minimum amount (or cost) of work required to earn the full credit. So as long as dirt is moved before the end of 2016 and an operating turbine is placed in-service by 2020, full credit will be realized.

This is no exaggeration. 

Take what happened this month in Gage County Nebraska after residents observed construction activity near their homes. Bluestem Energy Solutions, who hopes to erect a turbine at the site and sell the energy to the City of Beatrice, never notified the public of the project, never obtained a permit from the County and hasn’t even yet confirmed if the City will proceed with any plan. Nonetheless, Bluestem raced to move dirt so it can claim the 100% PTC should the turbine get built. 

Corporations with cash on hand are taking a different route but with the same intent. In October, ReCharge reported that Iberdrola-owned Avangrid authorized the purchase of enough wind components by year-end to lock in the 100% PTC on 2,000 megawatts of new wind. Most of this capacity is not under contract yet, but the economics were worth the gamble. By acting now, Iberdrola preserves nearly a quarter-billion in tax credits that would otherwise be lost if it waited until 2017 when the PTC steps down by 20%. (The dollar figure represents the difference between 100% PTC and 80% PTC, assuming a 30% capacity factor on 2000 megawatts).

These tactics are playing out all over the country. The American Wind Energy Association is now reporting over 20,000 megawatts of new wind under construction or in advanced development. By January, 2017 the 20,000+ megawatts will likely inflate further.

The Trump Administration should act immediately to rescind some or all of the IRS guidance issued since 2013. At the very least it should pull back on the most recent guidance issued last May and also work to tightened the language overall. Such action could be carried out on day-1 of Trump being seated and would not require Congressional involvement.  

2.    Tax Reform.

Now that both houses of Congress and the presidency are held by Republicans, there is a very good chance tax reform will finally proceed.

In March 2014, then House Ways and Means Chairman Dave Camp (R-MI) released his proposal to reform the U.S. tax code which offered no consideration for reinstating the PTC. But that’s not all. The bill retroactively reset the 2.3¢/kWh PTC back to its original 1.5¢/kWh before inflation adjustments. This meant that operating wind projects would lose a portion of their federal payouts. Camp's recommendations, while not acted upon, signaled bold thinking on tax reform which we are seeing again in the House Blueprint released this year by Paul Ryan and Ways and Means Chairman Kevin Brady. The Blueprint includes many of the signature promises made by Trump during the campaign.

The Blueprint eliminates all energy tax credits but also eliminates depreciation on imported capital equipment and imposes a tax on such imports. Since the U.S. wind industry relies on imports, losing the ability to depreciate equipment would be a blow to project economics. As long as this provision is on the table, Iberdrola would be wise to reconsider its recent orders. Open questions will remain on how the tax provisions are phased in and whether existing wind projects or those under construction will be grandfathered in under the old rules. We'll be following this closely in the coming year.

Even if there is no immediate action by the Trump administration on tax credits, there are a number of common-sense efforts needed at the federal level to encourage the safer siting of wind turbines. These include curbing the reckless erection of turbines near military, navigational and weather radars.

The Obama administration has not been honest about the effect of wind turbine technology on our national radar systems. In fact, our air space has been made less safe by turbines and our national security compromised because of a policy that allows the spinning towers within 30-50 miles of radar installations.  In effect, the wind PTC, which enables wind development, has worked at cross-purposes with other public funds spent to build/maintain the finest, most advanced radar systems in the world. 

This fall, Senator Cornyn (R-TX) introduced a critical bill aimed at addressing this issue. S3428 would remove all eligibility for the PTC and ITC tax credits for new wind turbine projects that would be located within a 30-mile radius of an active military airfield, a military air traffic control radar site, or a weather radar site. Senator Cornyn should be applauded for his foresight and we hope he will bring his bill forward.

Windaction and our thousands of colleagues nationwide are taking Mr. Trump at his word that he wants to drain the swamp in Washington and put the interests of Americans ahead of special interests. After billions in public hand-outs spanning nearly four decades, big wind has never been able to stand on its own and there's no reason to believe this will change. Tax credits are now a required component of the industry's economics, an outcome Congress never intended when the 20+ year temporary credits were enacted. If yanking the handouts causes the industry to flat line then so be it. The US has elected a businessman at the helm who understands what it means to cut your losses. It’s time we did exactly that!

Photograph courtesy Kevon Martis

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