Section 1603 Grant Extension: Just Say No (Good money after bad–is the end near?)
There’s desperation on the Hill by the taxpayer parasites. The wind industry is once again pressing Congress for a last minute extension of the Section 1603 subsidy.
And why not? ‘Tis the season for giving, and the approach of “Ask and ye shall receive” has worked pretty well for the industry so far, especially with a contingent of members happy to be led around by any entity cloaking itself in ‘green’. Who better to do the leading than the American Wind Energy Association (‘AWEA’), the trade group increasingly dominated by wind turbine manufacturers — most of whom are headquartered in Europe and Asia.
Any reasonable assessment of the 1603 grant program would be lost entirely on this crowd but there are facts that make any discussion of an extension foolhardy.
High Cost: The treasury reports it’s already distributed $9.6 billion in cash grants during the period from 2009 to October 31, 2011. Of this, 80% ($7.6 billion) was handed to wind developers representing 12,272 megawatts of installed capacity. Since the money does not transfer to project owners until a wind facility is in service, the public has NO idea of the total cost of 1603. And we won’t know until 2013 or after.
But based on projects now under construction, we estimate the outlay for wind alone to be closer to $20 billion. This is without an extension. If Congress agrees to extend 1603 by 1 year, this figure would be much larger. Remember, we are borrowing 40 cents on every dollar to pay for this program.
Poor project performance:The report estimates that generation from the 12,272 MW of installed wind will be around 32,487 gigawatt hours or 30% capacity factor. But Treasury never tested this assumption.
Five projects in New York, for example, received $300 million in grant money and operated at a dismal 22.6% capacity factor in 2010. We doubt these projects are unique. Unlike the production tax credit which is dependent on project performance, the cash grant imposes no operating criteria.
This has the effect of eliminating performance risks for the developer. If a project’s net capacity factor is marginal the public still grants the cash and projects that would normally not meet financial threshold requirements are apt to get built anyway. The Section 1603 program substitutes government payments for private investments after which the government just walks away.
Inflated Turbine Costs:Upfront cash grants give developers minimal incentive to negotiate lower prices with suppliers. In fact, the higher a project’s capital costs the more 1603 money that will flow. With turbine costs representing 55+% of the project’s cost, turbine manufacturers would do well to keep their prices high.
American taxpayers can expect much of the grant money to flow to foreign corporations. Based on AWEA’s quarterly reports for 2011, 63% of the 3355 megawatts installed in the first three quarters of the year represented turbines manufactured in Europe and Asia.
It’s no surprise to anyone the speed at which the industry has become reliant on 1603 grants. But Congress needs to understand that there are far cheaper, much more effective opportunities for achieving clean energy goals.
Instead, it’s succeeded in adopting a policy that drives up construction and energy costs while at the same time eliminating any incentive to build projects that can meet the highest performance standards. In fact, the more expensive a project is to construct the better for vendors, contractors and developers.
It doesn’t stop there. For intermittent resources, higher construction and operational costs also push up energy prices since there are fewer hours of operation to spread the inflated costs over.
Despite these facts, Congress will cave to the wind industry if you do not let you concerns known.
Call to Action
Minnesota’s Congressman John Kline has invited Members of the House to co-sign a letter he plans to send to Chairman Dave Camp (R-MI) of the Ways and Means Committee, asking that Section 1603 be allowed to expire on December 31, 2011 as scheduled. (See letter below).
The threat of an extension is real.
Please contact you representative. Ask him/her to sign Rep. Kline’s letter.
Message sent by John Kline to Members of Congress:
From: The Honorable John Kline Sent By: email@example.com Date: 12/1/2011
Save taxpayers’ hard earned money: Let Section 1603 for renewable energy grants expire at the end of 2011.
I invite you to join me in sending a letter to Chairman of the Ways and Means Committee Dave Camp to express support for the expiration of Section 1603 grants in lieu of tax credits for renewable energy, including wind projects. These grants are set to expire at the end of this year.
Section 1603 grants in lieu of tax credits were created as part of the failed stimulus bill and extended as recently as last year through December 31, 2011. According to the nonpartisan Congressional Research Service, “[m]arket response, since Section 1603 was established, has been mixed. The solar industry expects a record year of installations in 2010 (approximately 1 Gigawatt), while the wind industry forecasts a 50% decline compared to 2009 (approximately 5 Gigawatts installed in 2010 compared to 10 Gigawatts installed in 2009).”
While the goal of the program is to increase the use of renewable energy, including wind, I have escalating concerns about the unintended consequences of the program. For example, in Minnesota, a wind developer is working to establish a farm with more than 50 wind turbines despite strong concerns vocalized by hundreds of residents the program is slated to serve.
Furthermore, given current budget constraints, we simply cannot afford taxpayer-funded government subsidies that offer inconclusive results.
Join my call for fiscal responsibility by signing this letter to Chairman Camp. If you have any questions, or would like to sign this letter, please contact Yelena Vaynberg in my office at firstname.lastname@example.org or 5-2271.
Sincerely, JOHN KLINE Member of Congress
Draft letter for Congressmen to sign with John Kline:
December XX, 2011
The Honorable Dave Camp
Chairman, Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
Dear Chairman Camp:
In light of our shared commitment for comprehensive tax reform that would lower the tax burden for hard working Americans, we urge you to allow Section 1603 grants in lieu of tax credits for renewable energy to expire at the end of this year, as scheduled.
As you know, Section 1603 grants in lieu of tax credits were created as part of the failed stimulus bill and extended as recently as last year through December 31, 2011. While the goal of the program is to increase the use of renewable energy, including wind, we have escalating concerns about the unintended consequences of the program.
For example, in Minnesota, a wind developer is working to establish a farm with more than 50 wind turbines despite strong concerns vocalized by hundreds of residents the program is slated to serve. Furthermore, given current budget constraints, we simply cannot afford government subsidies that offer inconclusive results.
Taxpayers are unjustifiably incentivizing the wind industry where it may not be popular with the constituency or a necessary part of a long term national energy strategy. Consequently, Section 1603 grants should be allowed to expire at the end of this year.
Thank you for your consideration of this matter. We look forward to continue working with you on meaningful reform of our tax code that protects taxpayers and encourages economic growth.
JOHN KLINE Member of Congress