When politics creates uncertainty in the renewable-energy sector, it’s often bad news for entrepreneurs and businesses trying to make a buck in those industries.
That’s the general reaction this week among Illinois business owners and executives running wind-energy companies in the wake of last week’s news that a federal wind-energy tax credit won’t be extended beyond the end of this year. Washington lawmakers dropped the tax-credit renewal from a larger payroll tax bill, and there are doubts the measure will get tacked on to any other larger bills before the November election. A bill dedicated solely to extending the wind tax energy credit isn’t likely either.
More than a dozen wind-energy firms are based in Chicago and the state has more than 150 companies engaged in some piece of the wind-energy pipeline.
If wind-energy extension was folded into the payroll tax bill, companies operating in that sector would have continued to receive 2.2 cents in income tax credits per kilowatt-hour of electricity they produced. Without the extension, customers will put orders for supplies on hold or cancel them, and fewer turbines will get installed in 2013, predicts Kevin Borgia, director of the Illinois Wind Energy Coalition, a group of wind farm developers, turbine manufacturers, businesses and landowners. The coalition is a project of Wind on the Wires, a Midwest nonprofit wind-power advocacy group.
Crain’s met with Mr. Borgia to learn more about what Illinois stakeholders are doing in response to the recent legislative setback.
Crain’s: What’s the potential impact for Illinois manufacturers in the wind-energy supply chain?
Mr. Borgia: It’s a disaster. For turbines to be placed in service in 2013, manufacturers need to take orders now. But because of the policy uncertainty, orders are drying up, and another slice of the U.S. manufacturing sector is laying off workers. And while it’s possible Congress will pass the credit by the end of 2012, the closer we get to the end of the year, the less chance we have for growth in the wind market for 2013. The bottom line is that every business wants certainty, but congressional stalemates on this and other issues ensure American businesses have no certainty, and this hurts our economy.
Also, this on-again, off-again cycle drives up the overall costs of wind power. When a manufacturer has consistent orders and maintains a constant product output, it finds efficiencies that reduce cost. But the start-stop cycle of the wind PTC (production tax credit) hinders this reduction in cost. This prevents wind power from achieving cost parity with other energy sources, and paradoxically extends the time frame when the PTC is needed.
Crain’s: Are you optimistic that some other type of wind-energy tax incentive or rebate could pass through Congress before yearend?
Mr. Borgia: Several times in past years, Congress has passed a PTC extension with just days before its scheduled expiration. This ensures some projects are built in the following year, but growth is minimal because the uncertainty required developers to hesitate in their planning during the previous year. It’s possible Congress will do the same this year, after the election, but by then the damage will already be done: Projects will have been placed on the back burner and 2013 growth will be diminished.
Other energy sources do not have to manage this kind of uncertainty. Many incentives for oil and gas, coal and nuclear power have been in place for decades. These incentives are much larger than those provided to renewables, and their stability provides certainty that fosters growth in those sectors. Using temporary tax incentives for renewables politicizes the process and creates unnecessary economic instability.
Crain’s: Are there any developments at the state level that are making it attractive for business owners or entrepreneurs to pursue wind-energy opportunities in Illinois despite what’s happening in Washington?
Mr. Borgia: Well, the big incentive is at the federal level, but Illinois (like most states) has a renewable energy standard, which requires utilities in the state to buy a percentage of renewable power. The cost of implementing this law will rise if the PTC expires. But by design, costs of the RES are capped for ratepayers, so the cost will only increase to a certain point. Once the cost cap has been reached, utilities are allowed to stop buying renewables. So without the PTC, Illinois utilities will buy much less renewable power, and this reduces opportunities for businesses involved in the wind sector.
Crain’s: What advice do you have for entrepreneurs who are on the sidelines deciding whether they should venture into the wind-energy sector?
Mr. Borgia: Be patient but aware. Congress has extended the PTC at the last minute several times, and hopefully will make the right decision again this year. The best thing you can do is get involved and make it clear to your representatives in Congress that the wind PTC helps your business and fosters growth in today’s tough economy.
To read more, check out this Feb. 16 report from Crain’s. A snippet:
The wind-power industry employs about 1,500 directly in Illinois, plus another 3,800 among local suppliers, according to a Navigant Consulting Inc. study for the American Wind Energy Association. The study predicts a drop to about 800 direct jobs and 1,100 supplier jobs by next year if the tax credit expires.