Wind energy tax-credit extension part of 'cliff' deal

• Development of new wind projects delayed because of uncertainty
• Thousands of workers already laid off, more remain in limbo
• Industry says it needs credits to be competitive, make profit

PALM SPRINGS, Calif. — A one-year extension of a key tax credit for the wind industry was included in the fiscal cliff deal Congress passed Tuesday.

The tax credit, which has been a major driver for wind development across the country in the past two decades, is worth 2.2 cents per kilowatt-hour of energy produced by new wind installations for their first 10 years of operation.

A White House news release confirmed that the tax-credit extension is included in the Senate package that the House also passed.

It would allow any project that begins construction in 2013 to claim the credit, even if it goes online in 2014, according to industry insiders. The tax credit that expired Monday could be claimed only for projects that were up and running in 2012.

"Just simply, 30% of the value of a project is derived from the tax credit," said Florian Zerhusen, chief executive of WKN USA. The San Diego-based wind developer flipped the switch on two 3-megawatt turbines in the San Gorgonio Pass about 20 miles northwest of Palm Springs on Dec. 21, just days before the credit expired.

"That's what makes it so important, or you're making too low a return," Zerhusen said.

Pending expiration of the credit already had wrecked havoc on wind development across the country. Turbine-parts manufacturing plants laid off thousands of workers in recent months, and developers put new projects on hold, threatening another 37,000 jobs, according to the American Wind Energy Association.

"Everything comes to a screeching halt," said Nancy Rader, executive director of the California Wind Energy Association. "We end up in a limbo in which no projects or repowers move forward while they wait to see if the credit is going to be extended."

California was the first state in which large windmills were built — in the early 1980s — according to the association, a nonprofit that promotes wind energy in the state.

The loss of momentum likely will slow new projects in 2013 even with the credit extended, Rader said.

New wind capacity installed in California as of the third quarter in 2012 totaled 661 megawatts vs. the 921 megawatts installed for the whole year in 2011.

In this area, uncertainty over the credit has meant slow progress on new development as well as upgrades of hundreds of aging turbines in the San Gorgonio Pass, still considered one of the best places for wind energy in the state.

The estimated 2,500 turbines in the pass, 1,080 on public land, pumped out about 800 gigawatt-hours of power in 2011. That electricity accounted for about 5% of Southern California Edison's renewable power for the year.

One gigawatt-hour equals one million kilowatt-hours. The average home in California uses about 6,700 kilowatt-hours per year, according to figures from the U.S. Energy Information Administration.

Companies such as NextEra Energy and EDF Energy, both which own and maintain hundreds of aging turbines in the area, have no immediate plans for any upgrade projects.

The question still facing developers is whether a one-year extension will be enough to recapture the industry's lost momentum.

The American Wind Energy Association earlier this year proposed a six-year phase-out of the credit, an idea that has drawn mixed reviews from wind developers in view of ongoing tax breaks for other forms of energy.

"We've always said we won't need (the production tax credit) forever," said Ellen Carey, an association spokeswoman. "We need to have a glide-path to keep the success."

Fritz Noble, vice president of real estate and development for Wintec Energy, one of the companies that pioneered wind development in the pass, thinks the industry ultimately cannot run on the production tax credit alone but will be propelled by the state renewable energy standards, such as California's 33% goal for 2020.

In the meantime, he predicts a lull in 2013.

"A one-year extension just prolongs the uncertainty," he said.

MAP: San Gorgonio Pass in California