Across the country, wind turbine manufacturers are laying off or furloughing workers; they are not waiting to see whether the hotly debated wind production tax credit (PTC) gets extended by a lame-duck Congress.
By our estimate, approximately 3,000 jobs have already been cut or designated to be cut soon if buyers are not found to purchase wind turbine manufacturing facilities. That number is almost 30 percent of the 11,000 direct manufacturing jobs that the Navigant study commissioned by the American Wind Energy Association predicted exist in 2012.[i]
So, why is this job loss happening in the very energy sector that is most dear (along with solar) to the White House? Is it really just due to the looming expiration of the PTC, given that state mandates still exist, along with other special tax preferences?[ii] After all, the same drawbacks to windpower remain: up-front capital costs, intermittency, windy areas frequently far from population centers, and not-in-my-backyard environmental issues.
In fact, two other factors are weighing heavily on the wind industry; low-cost natural gas means a greater cost disadvantage for natural-gas-fired generation and overcapacity in the wind turbine manufacturing industry created by approximately $15 billion in nonrecurring stimulus (Section 1603)[iii].
According to Bloomberg New Energy Finance, the wind industry is expected to install almost 12 gigawatts of new wind turbines in 2012, with more than a third expected to come online in the last weeks of this year to meet the PTC expiration deadline. But even if the PTC is extended, Bloomberg only expects 5 gigawatts of wind power to be installed in 2013, almost a two-thirds decline.[iv]
Wind Turbine Manufacturing Jobs
At least 14 wind turbine manufacturing companies have announced plans to lay off workers or forestall new hiring so far this year, according to figures from trade groups, industry analysts, and press reports. About 3,000 jobs have been cut or are at risk in 15 states based on documented reports.[v] For example, Siemens has announced 407 layoffs at its blade manufacturing facility in Fort Madison, Iowa, and 146 jobs at a factory in Hutchinson, Kansas, that produces housings for the turbine generators and gears, along with 330 temporary positions that will not be renewed.[vi] Katana Summit, a tower producer, is looking for a buyer and has indicated that it will lay off 214 employees in Columbus, Nebraska, and 79 in Ephrata, Washington if a buyer is not found.[vii] Clipper Windpower in Iowa is reducing its staff by 174 jobs, from 550 to 376. DMI Industries, another tower producer, is planning to lay off 167 workers in Tulsa, Oklahoma by November.[viii]
Navigant estimated there are 11,000 direct, 10,000 indirect, and 10,000 “induced” wind manufacturing jobs in 2012. The 3,000 or so job layoffs, etc. compiled thus far are direct manufacturing jobs, representing over 27 percent of the estimated direct manufacturing jobs or 10 percent of direct, indirect, and induced jobs estimated by Navigant for 2012. Navigant defines “indirect” employment to be “employment by suppliers to direct manufacturers” and “induced” employment to be “employment resulting from greater economic activity spurred by direct employment”. While the American Wind Energy Association that commissioned the Navigant study wants these jobs losses to be all related to the production tax credit extension issue, there are clearly other factors contributing.
Competition from Natural Gas
Due to the advent of hydraulic fracturing and horizontal drilling technology in natural gas production, residential natural gas prices are the lowest they have been in years, and its production is the highest in U.S. history, according to data from the Energy Information Administration (EIA).[ix] EIA also estimates that average wind generating costs, including capital, finance charges, and operation and maintenance costs, are about 50 percent higher than the generating costs for a combined cycle natural gas plant, taking natural gas fuel costs into account.[x] According to EIA, wind and natural gas having been adding about equal amounts of new generating capacity, but natural gas is not subsidized to the extent that wind is. According to EIA, natural gas and petroleum liquids received $654 million in federal subsidies in fiscal year 2010 for electricity production, compared to $4,986 million for wind energy.[xi] On a unit of electricity production basis, however, the disparity is even greater: wind’s subsidy cost is 88 times higher, at $56.29 per megawatt hour vs. $0.64 per megawatt hour for natural gas and petroleum liquids.[xii]
State Mandates for Renewable Power
About 30 states have renewable portfolio standards (RPS) that require a certain percentage of their electricity to be generated from qualified renewable sources that has, in part, been driving the demand for wind energy since wind is the least expensive non-hydroelectric renewable generating technology.[xiii] However, utilities in most of the states with an RPS have enough wind capacity to meet their targets for the next few years. And even if RPS-driven demand accelerated, there is more wind turbine manufacturing capacity than is forecast to be needed. This over-capacity in the wind turbine manufacturing industry means that additional layoffs there are likely.
Exemption of Enforcement from Wildlife Laws: An Indirect Subsidy
According to energy expert Robert Bryce, “Despite numerous violations, the Obama administration—like the Bush administration before it—has unofficially exempted the wind industry from prosecution under the Eagle Protection and Migratory Bird Treaty Acts. If Congress extends the PTC, federal taxpayers will, in effect, be subsidizing the killing of federally protected birds.”
The Cost of Wind Jobs
There have been several estimates of what a wind job is costing the U.S. taxpayer, and all of them have been expensive. The National Renewable Energy Laboratory (NREL) tracked the Obama Administration’s 1603 treasury grant program from its inception in 2009 through Nov. 10, 2011 in a report entitled, Preliminary Analysis of the Jobs and Economic Impacts of Renewable Energy Projects Supported by the 1603 Treasury Grant Program.[xiv] They found that $9 billion in economic “stimulus” funds to solar and wind projects were distributed between 2009 and 2011 that created 910 “direct” jobs. That means that it cost about $9.89 million to establish each of those long-term jobs, covering the technologies’ 20 to 30 year life. However, adding in the 4,200 to 4,600 “indirect” jobs that NREL indicated were created, the cost is lower–about $1.6 million per job. According to NREL’s report, the $9 billion covered 23,692 photovoltaic and 197 large wind projects.[xv]
Over the past 20 years, wind producers have received $20 billion in subsidies for the PTC. Because the PTC is provided for 10 future years of generation, wind producers will still receive $10 billion in subsidies even though the credit is expiring at the end of this year. According to Congressional Budget Office, the estimate for extending the tax credit is $12 billion over the next 10 years. So, if the 37,000 job estimate that the Navigant study calculated for lost jobs due to the expiring PTC is correct, each job of these jobs cost the tax payer over $300,000.
The American Wind Energy Association would like us to believe that the PTC is the only factor affecting wind markets today and that it is needed to save jobs that are very costly to the taxpayer. However, a closer look at the industry finds that the wind manufacturing sector is over supplied, that many utility companies have exceeded their RPS targets for the next few years, and that wind is facing a great deal of competition from inexpensive natural gas generation. Due to the over-supply in turbines, manufacturers are already laying off workers irrespective of the PTC’s future.
[i] Navigant Energy, Impact of the Production Tax Credit on the U.S. Wind Market, December 11, 2012, http://www.awea.org/learnabout/publications/reports/upload/AWEA-PTC-study-121211-2pm.pdf
[ii] Assuming the entire project qualifies for 5-year depreciation, no bonus taken, the owner is able to use the depreciation deductions fully as they become available, a tax rate of 35 percent, and a discount rate of 10 percent, the tax savings from depreciation is worth 26 cents per dollar of capital cost of the project.
[iii] Testimony of Lisa Linowes, April 19, 2012, http://science.house.gov/sites/republicans.science.house.gov/files/documents/hearings/HHRG-112-SY21-WState-LLinowes-20120419.pdf
[iv] E&E Publishing, Wind layoffs mostly hitting constituents of PTC supporters, August 29, 2012, http://www.eenews.net/public/Greenwire/2012/08/29/1
[v] For a subset of these job numbers and companies, see E&E Publishing, Wind layoffs mostly hitting constituents of PTC supporters, August 29, 2012, http://www.eenews.net/public/Greenwire/2012/08/29/1
[vi] Wall Street Journal, Wind-Sector Cuts Tied to Tax Credit Clouds, September 19, 2012, http://professional.wsj.com/article/SB10000872396390444620104578006570821346816.html?mg=reno-wsj
[vii] Earth Techling, More Wind Job Losses Loom As PTC Fight Deepens, http://www.earthtechling.com/2012/09/more-wind-job-losses-loom-as-ptc-fight-deepens/
[viii] New York Times, Tax Credit in Doubt, Wind Power Industry Is Withering, September 20, 2012, http://www.nytimes.com/2012/09/21/business/energy-environment/as-a-tax-credit-wanes-jobs-vanish-in-wind-power-industry.html?_r=1&nl=todaysheadlines&adxnnl=1&emc=edit_th_20120921&pagewanted=2&adxnnlx=1349200194-oBL7S8jpzQQcTmJsgzmwjw
[ix] Energy Information Administration, Annual Energy Review 2011, September 27, 2012, http://www.eia.gov/totalenergy/data/annual/index.cfm
[x] Energy Information Administration, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2012, July 12, 2012, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm
[xiii] See Energy Information Administration, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2012, July 12, 2012, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm
[xiv] National Renewable Energy Laboratory, Preliminary Analysis of the Jobs and Economic Impacts of Renewable Energy Projects Supported by the 1603 Treasury Grant Program, April 2012, http://www.nrel.gov/docs/fy12osti/52739.pdf
[xv] CNSNEWS, $9 billion in ‘Stimulus’ for Solar, Wind Projects Made 910 Final Jobs–$9.8 Million per Job, June 20, 2012, http://cnsnews.com/news/article/9-billion-stimulus-solar-wind-projects-made-910-final-jobs-98-million-job