A tale of two nations
July 17th, 2012
By: Jeremy Twitchell
It was the best of times, it was the worst of times.
With apologies to Charles Dickens, there’s really no better way of contrasting how wind energy has fared this month in Dickens’ homeland, the United Kingdom, with how it has fared in the U.S.
Last week, the British government authorized two new wind farms that together will provide more than 1 gigwatt (GW) of power, part of a decade-long initiative to increase the country’s overall offshore wind capacity to 18 GW by 2020. It is also another step toward the nation’s goal of drawing 15% of its energy load from renewable sources by the same year.
And when the British government recently proposed to reduce the tax credit that it provides to wind farms by 10% because of declining technology costs, the industry agreed. Even when more conservative politicians called for cuts of 25%, the two sides recognized the importance of maintaining predictability for the industry and quickly moved to work out their differences. An agreement is expected later this week.
In the U.S., meanwhile, persistent inaction on the production tax credit that supports the U.S. wind energy industry caused one wind turbine manufacturer, Gamesa, to furlough 165 workers from two Pennsylvania plants earlier this month. And another major manufacturer, Acciona, is wrapping up its last domestic order at its Iowa plant and will only be filling international orders after that. But the news isn’t all bad; Gamesa expects to recall its employees by the end of the year – in order to fill an anticipated boom in orders from South America.
Despite a bipartisan coalition of support that includes elected officials, the U.S. Chamber of Commerce and almost 400 individual companies, U.S. lawmakers have remained reticent to extend the credit, which is set to expire at the end of the year. The uncertainty that they have created is bringing the industry to a standstill.
While politicians wring their hands over the credit, which provides 2.2 cents per kilowatt hour of electricity generated for the first 10 years of a turbine’s life, the U.K. and other nations are consistently investing in clean energy technologies. While the U.S. debates the wisdom of setting aside $3.5 billion per year to support clean energy, China is investing $3 billion to build a wind facility in Argentina.
The costs of inaction are staggering and far-reaching. The wind industry employs about 78,000 people in the U.S.; failure to extend the credit would reduce that number to 41,000 next year. Extending it for four years, on the other hand, would raise the number of jobs to 95,000 by 2016.
A stable, multi-year extension of the tax credit would also allow the wind industry to continue to close in on the holy grail of cost-competitiveness with fossil fuels without government subsidies. Driving costs down, however, depends on the experience that comes from designing, building and installing wind turbines on a large scale, or “learning by doing.” The production tax credit has proven crucial to this process in the wind energy industry.
The last three times that the production tax credit expired (1999, 2001, and 2003) saw wind turbine installations fall to almost nothing the following year. It wasn’t until the tax credit was given stability over multiple years that wind energy began to make major strides; its share of the U.S. energy mix grew from 1.3% in 2008 to 2.9% in 2011, and wind turbine costs are projected to reach all-time lows within the next year.
The bottom line is that clean energy is a potential $2.3 trillion market that the U.S. neglects at its own economic peril. There’s a reason that most of the major wind turbine manufacturers in the U.S. – Gamesa, Acciona, Siemens, and Vestas – are foreign companies. The U.S. has already lost major swaths of its clean energy industry to foreign companies; failure to protect the jobs and infrastructure that we have left will only ensure that “the worst of times” keep on coming.