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Wind tax break up in the air Energy tax credits blown by an ill wind

Bloom is off Oregons industry as Congress balks at renewing key subsidy


by: PAMPLIN MEDIA GROUP: CHRISTOPHER ONSTOTT - Via remote control, technicians at Iberdrolas National Control Center in Northwest Portland manage more than 3,300 wind turbines in 19 states.  How many roads must a man walk down to find new wind turbines next year?

The answer is blowing in the winds of Congress.

2012 was a huge year for new wind energy developments in Oregon, but the industry's future health may rest on the fate of an expiring federal tax break.

Congress’ failure to renew the production tax credit expiring at the end of the year has clouded the industry, contributing to a wave of layoffs at Vestas and a dampened outlook for Iberdrola, the two world leaders with North American headquarters blocks apart in Northwest Portland.

Portland’s burgeoning wind industry has been a success story in the city’s quest to be a renewable energy leader. Oregon leapfrogged Washington, Illinois and Minnesota this year to become the nation's fourth-leading state for wind energy production. Oregon also gained bragging rights to the nation’s second-largest wind farm with the completion of the sprawling Shepherd Flats project.

But the industry has been buffeted on several fronts lately:

• A new gas drilling method known as fracking sent natural gas tumbling — just as wind energy promoters boasted they were nearing price parity with dirty fossil fuel energy.

• A generous Oregon tax break used by wind farm developers, the Business Energy Tax Credit, was canceled by the Legislature for large wind projects effective the end of 2011.

• Regional wind energy providers are tussling with the Bonneville Power Administration, claiming that BPA unfairly restricts use of its transmission lines to distribute wind energy when the Columbia River hydro dams are humming.

• Republican presidential candidate Mitt Romney called for ending the production tax credit on the campaign trail.

“2013 will be a quiet year for investments in renewal energy in the Pacific Northwest,” predicts John Audley, deputy director of Renewables Northwest Project, a Portland-based trade group.

Local layoffs

As the outlook for new wind projects dimmed this year, Vestas Wind Systems, the Dutch world leader in turbine manufacturing, slashed its Portland headquarters staff from nearly 400 to less than 300, among other cutbacks. Iberdrola Renewables Inc. laid off about 25 people at its Portland headquarters, shrinking from around 400 to about 375 staff, as new wind energy projects were shelved.

“The production tax credit is critical to the continued growth of the industry, no question,” says Mike Grainey, renewable energy adviser at Business Oregon, the state economic development agency. “Each time it comes up to a sunset there’s been a significant damper on new development.”

Industry leaders hope the production tax credit is renewed during Congress’ lame-duck session, as part of the tax and spending negotiations under way to avert the so-called fiscal cliff.

“The prospects became clearer after election day,” says Kevin Lynch, Iberdrola vice president for external affairs.

President Barack Obama campaigned in favor of the production tax credit in places like Iowa, the nation’s third-largest wind energy state.

“My sense is we are in pretty good shape going into the lame-duck session,” Audley says. “You have a president who ran on it and won.”

Taking their lumps

However, advocates of renewable energy subsidies took plenty of hits this year, after the sudden collapse of Solyndra, a Silicon Valley solar manufacturer that won a $535 million federal loan guarantee. Closer to home, ReVolt Technology, a zinc-air battery developer that received some $10 million in aid from the city of Portland, state of Oregon and federal government, recently filed for bankruptcy.

Echoing a common refrain of conservatives, Port of Portland Executive Director Bill Wyatt recently questioned the wisdom of government officials who “pick winners and losers” by subsidizing green energy companies.

But there's a potent bipartisan coalition supporting production tax credits, which grant 2.2 cents for every kilowatt-hour of wind energy produced the first decade after a project is built.

The U.S. Senate Finance Committee voted in August to extend the production tax credit another year, and would allow companies to merely start construction during the year. The law requires projects to be placed in service by the end of 2012, which helps explain the rush to finish wind projects this year.

The American Wind Energy Association touts 25 GOP cosponsors for a House version of the Senate bill, plus support from the U.S. Chamber of Commerce, American Farm Bureau Federation and National Association of Manufacturers. Last month, Gov. John Kitzhaber joined several governors in wind energy-reliant states to urge extension of the production tax credits.

Audley says it’s unwise to pull the plug on federal tax subsidies after a decade that saw $6 billion in new wind developments in Oregon.

Wind energy accounted for 7 percent of all of Oregon’s electricity in 2011, enough to power 770,000 homes, according to the American Wind Energy Association.

Despite the market disruption caused by drooping natural gas prices, Audley notes that those prices can fluctuate, while wind developers get free fuel and can offer stable rates for 20 years.

There’s also continued pressure to reduce carbon emissions, Audley says, evidenced by Portland General Electric’s planned phase-out of its Boardman coal plant.

More potential

Oregon has 19 wind farms supplying a potential 3,076 megawatts of power, according to Renewable Northwest Project. Actual power production is about a third of that because wind is intermittent.

Despite billions in recent investments in Oregon, there’s plenty more locales for wind farms, Grainey says.

Renewable Northwest Project lists eight additional wind farms already approved for development, totaling 1,685 megawatts. Two were proposed by Iberdrola.

“We certainly have projects ready to build, if there is a market for it,” says Iberdrola spokeswoman Jan Johnson.

There's another 10 wind farms proposed or in the permitting process in Oregon, which would add another 3,370 megawatts.

Despite wide support for the production tax credit in the wind industry and its allies, there’s an ongoing debate about whether wind projects would proceed anyway without subsidies.

Grainey, who once oversaw management of the state Business Energy Tax Credit when he led the Oregon Department of Energy, says the expiration of that tax break “doesn’t seem to have” affected the pace of new Oregon wind projects, at least “so far.”

Utilities also face a mandate to add more renewable energy to their mix, under Oregon’s 2007 law setting renewable portfolio standards. PGE, Pacific Power and the Eugene Water and Electric Board face a 2015 deadline to supply 15 percent of their electricity from new renewable energy under the law, which bumps up to 20 percent by 2020 and 25 percent by 2025. There are lower requirements for smaller Oregon utilities.

To meet the 2015 standard, PGE recently received 64 bids from third parties offering to supply 100 more megawatts of renewable energy, enough to power 87,000 homes.

As the debate continues on whether wind energy subsidies are vital or necessary, some say it’s unfair to single out one sector when all forms of energy are subsidized in the United States.

“The government has been picking winners and losers in the energy sector for more than 100 years,” says Lynch of Iberdrola.

Oil companies enjoy sizable tax breaks, and some would argue wars have been fought on their behalf. Coal is often extracted from public land. The nuclear industry's liability insurance is covered by Uncle Sam.

“Fracking expenses have all been heavily subsidized by the federal government,” Grainey says.

Jody Wiser of Tax Fairness Oregon, who led an often lonely crusade against the state Business Energy Tax Credit for wind projects, has a different take on the production tax credit.

“If we’re going to discontinue the federal subsidies for renewable energy,” says the former Portland elementary school teacher, “we certainly should be discontinuing them for other forms of energy as well.”


Zap! Layoffs strike like lightning

If lightning strikes somewhere in the United States, you can bet the folks at Iberdrola Renewables know about it.

Wind turbines are usually the tallest objects around and vulnerable to lightning strikes. So Iberdrola keeps meteorologists on duty around the clock at its National Control Center in Northwest Portland, where the Spanish company’s North American headquarters oversees wind farms around the country.

Critics of wind energy subsidies often note that wind farms don’t generate many jobs once construction is done. A 2011 report by the Oregon Department of Energy found that three large Oregon wind farms collectively employed only about 60 workers.

But Portland focused its subsidies on two relatively large employers with the potential to lure spinoff jobs: Iberdrola, which employs about 385 people here; and Vestas Wind Systems, which, after a series of cutbacks, says it employs somewhat less than 300 people at its North American headquarters a few blocks away from Iberdrola.

There’s also about 100 other jobs at 10 other wind companies with operations here, plus 45 Oregon companies supplying wind energy components, says Mike Grainey, renewable energy adviser for Business Oregon.

Some critics may be second-guessing government subsidies for the industry after a spate of layoffs this year at Vestas and Iberdrola.

John Audley, deputy director of Renewables Northwest Project, a Portland trade group, insists the industry’s future is solid. “Repositioning for a downturn is a natural thing for any industry to do,” Audley says, “but these things aren’t going to go away.”

Staff at Iberdrola's local control center manage “$9 billion of iron in the ground,” notes Jan Johnson, company spokeswoman.

Importing turbines, which can weigh 300,000 pounds and be more than 100 feet long, can be costly, Audley says. As a result, there’s been an increasing share of domestic manufacturing, in contrast to the solar energy sector.

More than 60 percent of the turbine components installed by Iberdrola are made in the United States, says Kevin Lynch, vice president for external affairs. “Five years ago it was about 30 percent.”