A potential last-minute deal on the fiscal cliff is likely to include an extension of an expiring wind-energy tax credit, according to congressional aides.
The deal taking shape Monday would include tax breaks adopted by the Senate Finance Committee earlier this year, aides with knowledge of the talks said. Among them was a one-year extension of the tax credit, with slight modifications that would allow wind-farm developers to claim the credit for projects that begin construction by Jan. 1, 2014.
As the law currently stands, only projects that are completed and connected to the electricity grid by the end of 2012 can claim the credit.
Aides cautioned that the fiscal-cliff deal and its components weren’t final. Any package agreed to by lead negotiators also would have to be passed by the Senate and House.
President Barack Obama, speaking Monday afternoon about the emerging deal, referred to clean-energy tax credits without mentioning wind power specifically. He said the deal “would extend tax credits for clean-energy companies that are creating jobs and reducing our dependence on foreign oil.”
The cost of extending the wind-energy credit could be about $12 billion over 10 years, according to the Joint Committee on Taxation. Wind energy provides about 3.2% of U.S. electricity.
The tax credit is worth 2.2 cents for every kilowatt hour of electricity generated by a wind farm, so long as the facility is connected to the grid by the expiration date.
The last-minute renewal of the credit would arrive after months of heated battle. Proponents of wind energy, including clean-energy advocates—but also many Republicans from states such as Iowa and Colorado with healthy wind-power sectors—argued that extending the credit was key to preserving 75,000 jobs in the wind-energy business. They said that the expiration of the tax credit would have cost 37,000 jobs.
Opponents say that at a time of fiscal austerity, extending the credit is too expensive. Additionally, critics of wind power say it does little to make electricity generation more environmentally friendly because wind farms require some traditional sources of power as back up.
Power companies had also joined the fray. Exelon Corp., EXC +2.34% one of the largest utilities in the U.S., lobbied not to extend the credit, saying the subsidy distorts electricity prices and makes the company less likely to add new generating capacity.
If the credit is extended, attention would likely turn to ways to modify how the government supports wind energy. One proposal, endorsed by the wind lobby itself, would phase out tax credits over several years, giving the industry a chance to close the cost gap with traditional sources of power while still enjoying some government support.
Another proposal, introduced in Congress last summer, would make it easier for individuals to invest in renewable-energy projects by giving them the same tax treatment—access to master limited partnerships—that oil and gas projects receive. By widening the pool of investors, it could reduce capital costs, which could make renewable energy more competitive with traditional power sources.
The months of uncertainty over the credit’s extension mean that plenty of damage already has been done to the project pipeline and wind energy’s manufacturing base.
Uncertainty surrounding the credit led companies throughout the industry to lay off employees in 2012, from big makers of wind turbines such as Siemens AG SIE.XE -0.59% to small outfits that make some of the 8,000 components that go inside each machine. Also, because wind-farm developers hurried to finish projects in 2012 before the credit expired, a good part of the pipeline for future projects has already been installed, which will further damp the prospects for 2013.
By allowing wind projects that begin construction in 2013 to become eligible, the Senate Finance Committee’s version of the extension would support wind-farm construction over at least the next two years. A one-year extension without that modification would have been essentially useless, given that it can take between 12 and 24 months to build a wind farm.