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  • Absent Tax Credits, the Free Market Works for Wind Energy

    The wind production tax credit (PTC) expired again at the close of 2013, but Congress need not reconsider it.

    Although new power capacity installations were 92 percent below their 2012 levels, the wind industry still added 1,084 megawatts (MW) to existing production in 2013. American Wind Energy Association CEO Tom Kiernan pointed to this dip in growth as evidence the PTC encouraged investment, calling it a “highly successful policy.”

    Manipulation of the tax code to prop up an industry where growth is entirely dependent on a tax credit does not make a “highly successful policy.” The PTC, which began in 1992, subsidized 50 percent to 70 percent of the cost of wind-generated electricity in 2012.

    If wind energy still needs this much help from government after 21 years of not competing on a level playing field, the viability of wind as an energy source should be questioned. If wind is profitable, taxpayer-funded handouts merely offset investments the companies would make anyway.

    And that’s the story that isn’t being told: The wind industry doesn’t need the subsidies to succeed.

    Among those companies that still made investments last year was Pattern Energy, which added 214 MW to its generating capacity in Texas. The company turned to the stock market to finance the project and went public. After its IPO in October 2013, Pattern Energy had raised $352 million. This was more than enough to finance the Texas project, which cost only $202 million.

    First Wind and Emera also still found investment opportunities lucrative when they turned to private financing. By combining their wind projects to form Northeast Wind, First Wind and Emera partnered together to secure $395 million in credit. They will add 600 MW in new wind energy as a result.

    The investments were made during the fourth quarter of last year, when the fate of the PTC was still unknown. Although they ended up benefitting from the tax credit, Northeast Wind and Pattern Energy’s ability to secure private investment amid the uncertainty demonstrates that there is no longer a need for the subsidy. As Michael Webber, co-director of the Clean Energy Incubator at the University of Texas, told Bloomberg, “The wind industry is all grown up now.… It’s reasonable to ask if it deserves such a big subsidy.” Or any subsidy.

    The examples of Partner Energy, First Wind, Emera, and many other companies show that the expiration of the PTC is not a death certificate for wind. Their stories prove yet again that government does not need to pick winners and losers in the energy market. Investments will still occur, but projects either flourish or perish on their own merits.

    Wind has the opportunity to succeed on its own—the wheat simply needs to be allowed to separate from the chaff by permanently expiring the PTC to let companies succeed or fail on their own merits and create room for successful companies to expand.

    Mallory Carr is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.

    Posted in Energy [slideshow_deploy]

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