We find ourselves in the middle of one of the greatest wealth transfer periods of all time. Those with wealth must decide whether they want to make transfers, and if they do, they must decide how much, to whom, when and in what structure?
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“The dark clouds cleared and we have a ray of sunshine,” said Michael Rucker, chief executive of Boulder-based Juwi Wind LLC. “We have an industry again.”
President Obama signed the legislation Jan. 2. The extension covers wind projects that start construction in 2013. Companies that build and install wind turbines backed that provision since it allows for the 18 months to two years it takes to develop a new wind farm.
“We need that time to finance a project, procure the construction contracts and begin work,” Rucker explained. “With that construction ‘tail’ we can complete work in 2014. That tail is a very important detail; without it — had it just been a pure one-year extension — it would have achieved nothing for the industry.”
“It takes a long time from start to finish,” said Margaret McCall, field associate for Denver-based advocacy group Environment Colorado. “The fact that this was grandfathered in is very encouraging.”
The production tax credit provides an income tax credit of 2.2 cents per kilowatt-hour for the production of electricity from utility-scale wind turbines. The industry relies on the credit to keep wind-energy cost competitive with fossil fuels while the companies grow, technology improves and wind gains a foothold in electricity production.
“Extending the wind Production Tax Credit is a long-overdue dose of certainty for manufacturers who employ more than 5,000 Coloradans and 60,000 workers across America,” said Sen. Mark Udall, D-Colo., who delivered 27 speeches on the Senate floor in 2012 outlining the positive economic impact of the wind-energy industry. “Although this deal is not perfect, I am glad my colleagues have acknowledged what I have spoken about regularly on the Senate floor: Wind energy creates jobs and benefits every American. I look forward to continuing to lead the fight for our wind industry and an all-of-the-above energy policy in 2013.”
Citing a report from Navigant Consulting, Rucker told the Business Report last fall that the consequences of letting the credit expire would have cost more than 37,000 jobs in the United States, including 6,000 in Colorado.
Juwi Wind is the Boulder-based North American subsidiary of the Juwi Group, an international company that designs, builds and finances wind farms. It employs 20 people in Boulder.
Extension of the production tax credit “at least allows us to function,” Rucker said. “It’s a bit of stability as we look for longer-term solutions to incorporate wind into our energy mix.”
Uncertainty about whether the tax credit would be extended had forced cutbacks by much of the wind-energy industry in 2012. Turbine-parts manufacturing plants across the nation laid off thousands of workers and developers put new projects on hold.
On Oct. 3, Vestas Wind Systems AS (CO: VWS) announced it was consolidating three research and development offices, including one in Louisville, to one site in Brighton. Vestas also has large manufacturing plants in Colorado.
“We can’t speculate on future employment levels at our U.S. factories,” said Andrew Longeteig, spokesman for North American Vestas, adding that the company “has maintained a flexible workforce and will be able to scale production to meet customer orders with deliveries from our U.S. factories.”
Supporters of the tax credit would have preferred a longer extension. “We still think a more stable policy framework is needed to ensure a strong wind industry in this country,” Longeteig said.
Former Colorado Gov. Bill Ritter, director of Colorado State University’s Center for the New Energy Economy, called the extension “limited good news” but said he believed it would keep Vestas in Colorado this year.
The wind industry had asked for a tax credit that would run until 2018 and had pledged to end the subsidy after that, Ritter said.
“That didn’t happen, so we’re back in this boom-and-bust cycle of wind manufacturing that’s driven by this tax credit,” he said.
The key difference between the new tax credit and the previous one is that companies could not take advantage of the previous credit unless a project was distributing electricity into the grid, he said. Under the new tax-credit scheme, a company can qualify for the credit as long as wind-project construction begins by Dec. 21.
Approval of the extension is “really good news for Vestas, because the American market and how it develops is extremely important,” Vestas chief marketing officer Morten Alback told Bloomberg News. Vestas now expects higher orders for turbines this year than would have happened without the credit’s extension, Alback said, adding that it’s “too early” to predict exact numbers.
In a statement, Vestas noted that the short-term extension is critical to ensure projects move forward and orders are placed that “will support U.S. manufacturing and the domestic supply chain. Even though the late timing of the extension will result in a significant reduction in 2013 installations relative to prior years due to the time it takes from when an order is placed to project completion, the U.S. market will nonetheless be stronger as a result of the PTC extension.”
Like Udall, Sen. Michael Bennet, D-Colo., has been a supporter of the tax credit — including adding an amendment for the extension to a transportation bill in February — but was one of eight senators voting against the fiscal-cliff deal because it didn’t contain “a comprehensive deficit reduction package,” Bennet said in a press statement.
“While the extension of the PTC was included in a much larger bill that I eventually could not support, it is a worthy investment. Colorado is a wind-energy leader and a majority of our state’s congressional delegation recognized the tax credit’s importance. Our delegation led a national bipartisan and bicameral effort all year long to extend it. It is critical to Colorado’s diverse energy sector, and its extension will help save thousands of jobs across the state. Businesses that rely on the wind industry now have added certainty and we can expect continued investing in this technology. This extension should have been passed long ago and should never have been caught up in Washington’s irresponsible eleventh-hour act to avert a manufactured crisis.”
Bennet has been “100 percent on our side” about wind energy, McCall said, “and we wanted to thank him.”
Challenges remain as the wind industry recovers from the period of uncertainty, Rucker said. “The fundamentals are still weak, demand is low, and we need utility buyers.”
Steve Lynn contributed to this report.