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Federal Wind Tax Credit Could Lapse; If It Does, Would Texas Suffer?

Swift renewal of a generous federal tax incentive for wind energy producers appears unlikely after Congress directed most of its recent attention to finding a way to turn the government back on. But the industry may not fare as bad this year as it has in the past.

A wind farm near Abeline, TX, April 5, 2011

Dec. 31 is a curious date for Texas wind energy producers.

That’s when transmission services providers expect to energize the last power lines built under the state’s $7 billion Competitive Renewable Energy Zone, or CREZ, initiative — the long-running effort to connect windy West Texas to the state’s biggest energy-thirsty cities. The 3,600-mile buildout has been credited with spurring even more investment in Texas, the country’s wind power leader. 

But 2013’s last day is also an ominous one for wind folks. It is also the expiration date of the federal Renewable Electricity Production Tax Credit, whose fate has driven booms and busts in the industry. The multibillion-dollar credit, which Congress passed in 1992, helps wind stay economically competitive with other energy sources, including low-priced natural gas. Without it, the industry can’t keep pace, even as production costs fall.

Last year as the credit neared its demise, Congress extended it has a part of a last-minute budget package, but only for a year.

Now, after Congress directed most of its recent attention to finding a way to turn the government back on and to pay its bills, lawmakers have yet to draw up a proposal for the credit, making a swift renewal increasingly unlikely. 

So how would Texas wind power fare if the 2.3-cent-per-kilowatt-hour incentive lapsed? That would depend on how long the credit is unavailable, observers say. But for a couple of reasons, the impact won’t probably be as harsh as in past uncertain times.  

Jeff Clark, executive director of the Austin-based Wind Coalition, said he’s not too worried about the ticking clock. “There’s a lot of projects in the pipeline right now,” he said.

In the past, as tax credit uncertainty loomed, turbine manufacturers laid off workers well ahead of the deadline as projects stalled. For instance, Vestas, a major turbine maker based in Denmark, closed a Houston research and development facility last year that once employed 75 people. 

But this year looks different.

Texas grid operators are reviewing some 21,000 megawatts worth of new wind capacity. Typically, about 20 percent of proposals end up being built. New projects in the Panhandle — including a 1,100-megawatt wind farm near Lubbock that would be the country's largest — are expected to exceed the capacity of the region's new transmission. (Texas’ current wind power generating capacity sits above 12,200 megawatts.)

The transmission buildout has helped stock that list of projects, and a change in federal tax rules has helped, too. Developers can now claim the production tax credit for projects that are under construction as the year ends. Under the previous policy, qualifying turbines had to be in production to get the credit. 

In other words, though new projects would stall without a prompt renewal, the new rule buys time for projects already under development.

Still, renewing the credit at a later date is hardly certain. Though the wind industry has long received bipartisan support, fiscal hawks in Congress are turning up the volume on calls that the country can’t afford the credit, whose one-year renewal would cost $6.2 billion over 10 years.

“We keep hearing that we’re almost there, or just a little bit longer,” U.S. Rep. James Lankford, a Republican from windy Oklahoma, said at a U.S. House Oversight Committee hearing this month. “There’s this point at saying, when does wind power take off on its own?”

Wind energy advocates argue the credit puts the industry on equal footing with competitors such as oil, gas and coal — industries that have also enjoyed plenty of tax incentives.

Meanwhile, Texas’ congressional Republicans in recent years have largely appeared ambivalent, despite Texas’ outsize role as a wind energy producer. And Gov. Rick Perry, once considered a champion of the industry, began denouncing federal renewable energy subsidies during his failed presidential bid.

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