Does the Wind Energy Industry Need the Federal Tax Credit to Survive?

October 19, 2014

 

The wind energy industry currently benefits from a federal tax credit that allows wind energy projects to reduce their federal taxes by 2.3 cents per kilowatt-hour of electricity produced over a ten-year period.[1] Over ten years, the tax credit will cost the federal government $24.7 billion in lost tax revenue.[2] With the tremendous growth of wind energy in the U.S., does the industry still need the tax credit to survive?

The tax credit certainly promotes investment in the construction of wind farms—private investment in the industry as a result of the credit is over $20 billion each year.[3] Yet the very growth of the industry could signal that the industry no longer needs this credit to survive; the industry would likely continue to thrive without it.[4] In Texas, the wind energy industry is growing rapidly. The Electric Reliability Council of Texas (“ERCOT”) had 10,570 megawatts of wind power available as of August 31, 2013; in March of 2014, instantaneous output reached a record 10,926 megawatts.[5] Only about 15 years in the making, wind energy is a young addition to the energy sector and has already become a multibillion-dollar industry. By 2012, 9% of Texas’s electricity was produced by wind energy.[6] 

There has been a recent increase in both the number and size of wind farms in Texas. Tri Global Energy, a Dallas-based energy company, is planning the construction of a 190-square-mile wind farm in the Texas Panhandle, and it is expected to produce 1,100 megawatts annually.[7] This project is expected to be operational at 200 megawatts by late 2015 and fully operational by 2018.[8] Google announced September 17 that it is purchasing the entire 240-megawatt output of Happy Hereford, an Oklahoma company-developed wind farm located outside of Amarillo.[9] This farm is expected to be operational by late 2014.[10] Google’s Happy Hereford investment is in addition to the $200 million Google invested in December 2012 in the nearby Spinning Spur wind farm, a 161-megawatt facility, and the $75 million in a 50-megawatt wind farm facility in Iowa.[11]

Moreover, an increasing number of new wind farm projects are being planned and constructed along the Gulf Coast, a change from the industry’s West Texas origins.[12] The slow and steady coastal winds are attracting wind farm investors because they more readily meet demands for energy and thus amount to larger profits for energy companies than do wind projects relying on faster but fluctuating prairie winds.[13] The main problem with the West Texas wind farms is that winds diminish in the afternoon—the same period that summer temperatures peak and demand for electricity rises.[14] Currently, the planned wind projects along the coast total 1,300 megawatts, representing a potential $2.3 billion investment.[15] Despite this growth, the biggest wind projects in Texas currently remain in the Panhandle.[16]

From a government policy standpoint, encouraging the wind energy industry as an alternative energy resource is a logical choice, and thus continuation of the tax credit makes sense. Wind energy is an attractive renewable resource because of its negligible health and environmental effects. Because the wind turbine is designed to convert kinetic energy into electricity, there are no carbon emissions or pollutants produced by the process—meaning wind energy does not contribute to climate change and air pollution as does the production and use of non-renewable energy sources.[17] Additionally, the design of the wind turbines allows for minimal interference with the land surface and thus the land occupied by wind farms may be used for its original farming and ranching purposes.[18] Finally, investment in wind farms helps diversify the nation’s energy portfolio and reduce reliance on non-renewable resources. But, because many states have recognized these policy points and already legislated renewable power mandates, continued federal incentives may be unnecessary to foster the wind energy industry.[19]

Despite the positive environmental impact of wind energy recognized on both the state and  federal level, opposition to the industry may make the tax credit necessary for preservation of the still-young industry. The Gulf Coast projects in Texas face protests from environmental groups because of the turbines’ interference with the migratory pattern of certain birds.[20] Others protest the farms’ negative aesthetic impact, although such protests are more common with the wind farms planned along the Gulf Coast than those in West Texas.[21] Still other groups protest the negative impact on health caused by the turbines—although no scientific basis for the claims exist, many of those that live close to wind farms claim to suffer from Wind Turbine Syndrome.[22] But because wind energy companies anticipate and react to these oppositions in advance, such protests do not appear to erect a sufficiently significant hurdle to necessitate wind tax credits. For example, coastal projects utilize radar on the turbines, which shut them off when large flocks of migratory birds are approaching.[23] Such anticipatory measures should help shield the industry from being handicapped by protests and opposition.

Where does this leave the wind energy industry? On the one hand, the wind energy industry is robust and growing; but on the other, much of the private investment in the energy is encouraged by the federal tax credit.[24] Perhaps the best answer is a compromise: slowly phase out the tax credit, enabling the industry to grow and solidify before losing its government subsidy while allowing the federal government to retain a portion of that large, otherwise lost, potential tax revenue.


[1] Jennifer A. Dlouhy, Congress Weighs Future of Wind Energy Tax Credit, San Antonio Express-News, Oct. 2, 2013, http://www.mysanantonio.com/business/eagle-ford-energy/article/Congress-weighs-future-of-wind-energy-tax-credit-4864107.php.

[2] Id.

[3] Id.

[4] Id.

[5] Nicholas Sakelaris, Texas Wind Power Growing Fast, Dallas Business Journal, Sept. 23, 2013, http://www.bizjournals.com/dallas/news/2013/09/23/texas-wind-power-growing-fast.html; Wind Generation Output in ERCOT tops 10,000 MW, breaks record, ERCOT Press Release, March 28, 2014, http://www.ercot.com/news/press_releases/show/26611.

[6] How Texas Became A Wind Farming Power House: A Future Tense Event, The Slate Group, Oct. 11, 2013, http://www.slate.com/blogs/future_tense/2013/10/11/the_great_texas_wind_rush_by_kate_galbraith_and_asher_price_a_future_tense.html.

[7] James Osborne, Country’s Largest Wind Farm Planned in Texas Panhandle, The Dallas Morning News, Sept. 24, 2013, http://www.dallasnews.com/business/energy/20130924-countrys-largest-wind-farm-planned-in-texas-panhandle.ece?nclick_check=1.

[8] Id.

[9] Another Windy Day in Texas: A New Power Purchase Agreement, Google: Official Blog, Sept. 17, 2013,, http://googleblog.blogspot.com/2013/09/another-windy-day-in-texas-new-power.html; Emil Protalinski, Google Purchases Entire Output of 240MW Texas Wind Farm, Will Start Producing Energy in Late 2014, The Next Web, Sept. 17, 2013, http://thenextweb.com/google/2013/09/17/google-purchases-entire-output-of-a-240mw-texas-wind-farm-which-will-start-producing-energy-in-late-2014/; Chris Clarke, In Search for Renewables, Google Finds More Texas Wind, KCET, Sep. 17, 2013, http://www.kcet.org/news/rewire/wind/google-wind-power-texas-renewable-energy.html.

[10] Another Windy Day in Texas: A New Power Purchase Agreement, Google: Official Blog, Sept. 17, 2013,, http://googleblog.blogspot.com/2013/09/another-windy-day-in-texas-new-power.html.

[11] Emil Protalinski, Google Invests $200m in Texas Wind Farm, Ends 2012 with Over $1 Billion in Renewable Energy, The Next Web, Jan. 9, 2013, http://thenextweb.com/google/2013/01/09/google-invests-200m-in-texas-wind-farm-ends-2012-with-over-1-billion-in-renewable-energy/; Emil Protalinski, Google Invests $75m in a 50MW Wind Farm, Has Contributed Almost $1 Billion to the Renewable Energy Sector, The Next Web, Nov. 15, 2012, http://thenextweb.com/google/2012/11/15/google-invests-75m-in-a-50mw-wind-farm-has-contributed-almost-1b-to-the-renewable-energy-sector/.

[12] Nicholas Sakelaris, Texas Wind Power Growing Fast, Dallas Business Journal, Sept. 23, 2013, http://www.bizjournals.com/dallas/news/2013/09/23/texas-wind-power-growing-fast.html.

[13] Mark Chediak, Gulf Coast Beckons Wind Farms When West Texas Gusts Fade, Bloomberg, Oct. 11, 2013, http://www.bloomberg.com/news/2013-10-10/gulf-coast-beckons-wind-farms-when-west-texas-gusts-fade.html.

[14] Id.

[15] Id.

[16] Nicholas Sakelaris, Texas Wind Power Growing Fast, Dallas Business Journal, Sept. 23, 2013, http://www.bizjournals.com/dallas/news/2013/09/23/texas-wind-power-growing-fast.html.

[17] Air Emissions, U.S. Environmental Protection Agency, http://www.epa.gov/cleanenergy/energy-and-you/affect/air-emissions.html (last updated May 22, 2014).

[18] Nicholas Sakelaris, Texas Wind Power Growing Fast, Dallas Business Journal, Sept. 23, 2013, http://www.bizjournals.com/dallas/news/2013/09/23/texas-wind-power-growing-fast.html.

[19] Jennifer A. Dlouhy, Congress Weighs Future of Wind Energy Tax Credit, San Antonio Express-News, Oct. 2, 2013, http://www.mysanantonio.com/business/eagle-ford-energy/article/Congress-weighs-future-of-wind-energy-tax-credit-4864107.php; cf. Another Windy Day in Texas: A New Power Purchase Agreement, Google: Official Blog, Sept. 17, 2013,, http://googleblog.blogspot.com/2013/09/another-windy-day-in-texas-new-power.html  (reporting Google’s commitment to transitioning to renewable energy).

[20] Mark Chediak, Gulf Coast Beckons Wind Farms When West Texas Gusts Fade, Bloomberg, Oct. 11, 2013, http://www.bloomberg.com/news/2013-10-10/gulf-coast-beckons-wind-farms-when-west-texas-gusts-fade.html.

[21] Id.

[22] Margareta Pagano, Are Wind Farms a Health Risk? US Scientist Identifies ‘Wind Turbine Syndrome’, The Independent, Aug. 2, 2009, http://www.independent.co.uk/environment/green-living/are-wind-farms-a-health-risk-us-scientist-identifies-wind-turbine-syndrome-1766254.html.

[23] Mark Chediak, Gulf Coast Beckons Wind Farms When West Texas Gusts Fade, Bloomberg, Oct. 11, 2013, http://www.bloomberg.com/news/2013-10-10/gulf-coast-beckons-wind-farms-when-west-texas-gusts-fade.html.

[24] Federal Production Tax Credit for Wind Energy, American Wind Energy Association,    

http://www.awea.org/Advocacy/content.aspx?ItemNumber=797.

Lindsey Farless is in her third year of law school at the University of Texas School of Law. She joined TJOGEL as a member in the Fall of 2012 and as a staff editor in the Spring of 2013. After graduating from law school, she will join Jackson Walker's Fort Worth office as an associate.