Fiscal-Cliff Deal Gives Wind Power a Lift -- For Now

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By Mary Duenwald

One of the bright spots in the fiscal-cliff deal is its one-year extension of the federal production tax credit for wind power.

Wind farm developers had been working like mad to finish installations by Dec. 31 to take advantage of the 2.2-cent credit for every kilowatt hour they generate in their first 10 years (adding up to about $1 million for every large turbine). Now, they will have another full year, and the credit will apply even to projects that are started but not fully completed by the end of 2013.

If the tax credit had expired, some 37,000 jobs would have been lost, according to the American Wind Energy Association. Thanks in part to the credit, onshore wind has increased capacity significantly -- especially during the past year. By 2030, it could provide 20 percent of U.S. power, according an analysis prepared by the U.S. Department of Energy

The trouble is, the extension is brief, and it's impossible to predict whether there will be another one next year. This has been the problem with the wind-power tax credit all along: It locks the industry into a perpetual cycle of boom and bust.

In 2012, with expiration of the credit looming, the wind industry commissioned possibly as much as 13.3 gigawatts of wind power, a new annual record, according to Bloomberg New Energy Finance. Because no one knew until this week that the credit would be renewed, less than a fourth as much is planned for 2013.

What's needed to allow the wind industry some stability is a thoughtful approach for the long term, one that guides wind power gradually toward a subsidy-free future. The tax credit should be ensured, but phased out over five years or more -- ideally via a mechanism that accounts for the difference in price between wind power and natural gas-fired power.

Such is the kind of sensible planning that would be good to see as part of general tax reform. (A tax on carbon emissions is another example.) Would it be too much to hope that Congress might take this up in the year ahead?

(Mary Duenwald is a member of the Bloomberg View editorial board.)

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-0- Jan/03/2013 22:56 GMT