Congressional voting to extend a production tax credit (PTC) for renewable energy year-to-year has become an annual event and indicates, outside of corn-based ethanol, how tepid real support and action to support and prioritize development of renewable energy resources is on the part of elected federal government representatives
The annual legislative push-and-pull surrounding renewing the renewable PTC creates uncertainty, raises costs, and hinders entrepreneurial activity, small business and wider industry ecosystem development, according to executives at GE Energy Financial Services.
Moreover, tax revenues from wind energy project, vendor and individual workers’ income more than pays for the federal tax incentive, which is due to expire Dec. 31, according to a study GEFS released today at the American Council on Renewable Energy’s (ACORE) Renewable Energy Finance Forum, which took place at the Waldorf Astoria in New York City.
“Congress’s repeated failure to act could derail the wind energy industry at the worst possible time for the economy, placing 76,000 jobs and more than $11.5 billion in investment at risk,” commented Randall Swisher, the American Wind Energy Association’s executive director.
*Photos Courtesy GE
Generating Tax Revenues
Wind makes up 80% of GE Energy Financial Services’ more than $3 billion renewable energy portfolio. Its US wind equity portfolio includes 34 farms spanning 13 states and producing 3,550 megawatts of energy – enough to power approximately 1 million US homes. GEEFS plans to invest $6 billion in renewable energy projects by 2010, including wind, solar, biomass, hydro and geothermal power generation.
Last year’s crop of wind projects that came on-line generate federal income tax revenues, as do income taxes on individual workers wages, vendors’ profits and land leases, according to the GEEFS study. They also provide federal tax revenue after 10 years, when the PTCs expire.
On top of federal tax revenues, wind projects generate an estimated $6 million a year in local property taxes, $15 million annually in state income taxes on wages and profits during construction, and $1.5 million per year in taxes while operating.
The Detrimental Effects of Legislative Uncertainty
The uncertainty surrounding the renewable energy PTC is holding back resource and industry development at a time when inflation and economic weakness, credit problems, a weak dollar, massive government debt and a stratospheric rise in oil and natural gas prices is hurting the economy.
Panel participants noted that the renewable energy production tax credit has expired three times in the past nine years. Every year, the uncertainty of renewal resulted in an estimated 76-90% drop in installed capacity from the previous year.
Due to legislative uncertainty, lenders are forced to omit the financially beneficial effects of the PTC from their project finance calculations, one GEEFS panel member noted during the report’s launch. Lenders are less willing to lend, and they require more equity, which raises project financing costs, squeezes out the smaller players. “The bigger guys can pick up the slack to some degree, but they have to rely on more expensive equity,” he pointed out. Primarily a tax-equity financier, “we don’t get paid for taking that risk [that the PTC will be renewed].”
More Jobs, Less Emissions
In addition to the federal income tax revenues that flow into the federal treasury, wind power projects are creating employment. Wind farm projects created more than 17,000 construction jobs and 1,600 long-term jobs related to operations last year, according to the GEFS study, which used a model developed the Dept. of Energy’s National Renewable Energy Laboratory to analyze the data.
Then, of course, there are the reductions in greenhouse gas emissions that result from wind power farms, which will carry on as long as they are operational. Each year, wind power farms mean avoiding the production of some 10 million metric tons of carbon dioxide emissions, equivalent to taking 1.8 million cars off the road, GE estimates.
So What’s the Hold Up?
Senators are apparently unaware of the income tax revenues that the PTC has a direct hand in generating. The most recent renewal attempt stalled on the Senate floor as the debate focused on how to offset the cost of the PTC with tax revenues.
“Congress is debating how to pay for the wind tax credits perhaps without realizing that, over time, wind farms pump more money into the US Treasury and state and local coffers than they take out,” Kevin Walsh, managing director of renewable energy at GE Energy Financial Services, said at the conference today. “Our study shows that the wind farms more than pay for themselves through existing tax revenues, so it’s time to renew the incentives immediately.”
“Too often, politics, rather than economics, has shaped the debate about extending the production tax credit,” Michael Eckhart, ACORE’s president, stated. “GE’s new study identifying additional economic benefits of the wind industry should bring all parties together, all supporting a proposition that is good for the environment, good for the economy, and even good for the federal treasury.”