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The fiscal cliff deal helped wind power. But our wind policy is still insane.

It took a lobbying blitz and a little bit of luck, but the wind industry eventually got its hoped-for reprieve in Tuesday's fiscal cliff deal.

(Getty Images)

As part of the bargain, Congress extended a key tax credit for wind energy for another year — at a cost of some $12 billion over 10  years. Not only that, but Congress made a small tweak: Wind producers won't have to finish their projects by 2013 to qualify for the production tax credit. They'll just have to begin building this year. That's a crucial change that could give the U.S. wind industry a boost in the decade ahead.

Yet even with the tax credit renewal, the wind industry is still likely to slump in 2013. And that's partly because congressional support for wind is extremely erratic — never steady, and always on the verge of expiration. 

An easy way to see this is to note that there aren't likely to be many wind turbines finished this year, even with the tax credit's renewal. That's because many developers were so worried that Congress would let the credit expire in 2012 that they raced to finish all their projects before Jan. 1. All told, a record 12,000 MW of capacity was built last year. (Over the course of a year, a wind turbine produces roughly a third of its capacity, so that's as much electricity as comes from four large coal plants.)

And now the frenzy is mostly over. "That means we'll likely see a dip in 2013 even with the tax credit renewed," says Matt Kaplan, an associate director at the energy research group IHS Inc. Companies like Vestas have already laid off thousands of American workers.

True, the renewed tax credit could make a big difference in future years. Many developers will likely begin a fresh round of projects in 2013 in order to take advantage of the credit, which is worth $22 per megawatt-hour and typically covers up to 30 percent of the cost of a project. Even if they can't finish the projects this year, they can at least get started. What's more, the United States could finally see the first round of offshore wind projects get underway this year, including Cape Wind.

All told, Kaplan estimates, the wind industry could build between 5,000 MW and 6,000 MW per year from now until 2020 — making wind an ever more important energy source for the United States. By contrast, if the credit had expired, only about 2,000 MW would likely have been built in 2013. (Wind is still facing pressure from cheap natural gas, although it's helped somewhat by state-level renewable mandates that boost demand for new turbines.)

Whether there's a longer-term boom depends a lot on what policies Congress sets this year. Many conservatives would prefer to stop subsidizing wind power altogether after 2013, saying that it's too expensive, too intermittent and too hard to integrate into the grid. Some wind companies, by contrast, are pushing for a multi-year renewal of the investment tax credit, which covers 30 percent of a project's costs. In other words, the choice again is between boom or bust.

Recently, the Brookings Institution and the Breakthrough Institute released a paper (pdf) arguing that it would be far better to gradually phase the credit out over a few years — so that wind power gets to the point where it can stand on its own without subsidies. (After all, wind power keeps getting cheaper and more efficient.) That, they say, would be far more sensible. The paper is titled "Beyond Boom and Bust."

“The goal shouldn’t be to simply subsidize industries endlessly,” report co-author Jesse Jenkins told me this year. “It should be to improve innovation so that the subsidies can phase out over time.” That means investing in more R&D and rewarding technological improvements.

The American Wind Energy Association has said it could support something along these lines. For now, however, U.S. wind policy keeps bouncing around between extremes — it's either great news for the wind industry or terrible news, with nothing in between.



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Dylan Matthews · January 3, 2013

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