Wind tax credit seen as late relief in state

A windmill (rear center) supplies water to a stock tank, surrounded by wind turbines of the Smoky Hills Wind Project near Wilson, Kan.

A windmill (rear center) supplies water to a stock tank, surrounded by wind turbines of the Smoky Hills Wind Project near Wilson, Kan.

Saturday, January 5, 2013

— A year-long extension of the federal Production Tax Credit, approved by Congress this week, did not come soon enough for Arkansas’ wind-industry manufacturers, who aren’t rushing to hire more employees or start new projects.

It’s going to be a slow start for the wind-energy industry, company officials said. The late decision on the tax credit has already hampered production for 2013.

The tax credit of 2.2 cents per kilowatt-hour of renewable power was extended Tuesday as part of a last-minute passage of a bill to avoid the “fiscal cliff.” But because lawmakers were slow to broker a deal, uncertainty over the tax credit loomed for most of 2012.

As of a result, the wind power industry, which lobbied for an extension, began laying off employees and slowed production earlier in the year.

“It’s probably a little bit late,” said Ralf Sigrist, chief executive officer of wind-turbine manufacturer Nordex USA Inc. “Twenty percent of the damage has already been done.”

Nordex, which employees 70 people at its plant in Jonesboro and 220 nationwide, was able to avoid layoffs, but production was stalled as the company’s customers stopped new orders while they awaited the fate of the tax credit, Sigrist said.

“Due to that uncertainty ... no wind manufacturer has orders for 2013,” Sigrist said Wednesday. “Our customers need that certainty.”

The credit is intended to make wind power a more competitive energy source.

Sigrist said the company has been working on “contingent orders” and has not ordered new material to build the turbines, which cost from $2.6 million to $3.2 million dollars.

Sigrist said he hopes orders will pick up by mid-March but it would take four to five months for parts to arrive after they are ordered.

“So we are running out of material to keep people busy,” he said.

LM Wind Power, the largest manufacturer of wind turbine blades in the world, suffered some project cancellations, but it also saw a rush to get orders completed before Dec. 31 as its customer’s pushed to get windmills installed and commissioned so they would qualify for the tax credit, said Bill Burga Jr., the Denmark-based company’s head of manufacturing for Americas.

“What we saw was a huge burst of interest,” he said. “We started to slow down in the fourth quarter - what we realized was a virtual stop as we got into January.”

Burga, like Sigrist, said production will be delayed until the company can order the materials to start work.

The delay in renewing the tax credit led LM Wind Power in August to announce plans to lay off more than half of its work force at its Little Rock plant.

At the time of the announcement, the company employed 300 full-time workers in Little Rock and had another 140 temporary jobs. Eighty hourly employees and 14 salaried employees were laid off, and all of the temporary positions were cut.

Last year, at least 3,000jobs in the U.S. were cut by October because the wind power tax credit had yet to be renewed, the American Wind Energy Association said. Ellen Carey, spokesman for the group, didn’t have an updated number for the entire year but said the tax credit extension protected thousands of jobs. The association predicted 37,000 of the 75,000 wind-energy jobs in the U.S. would be lost if the measure was not approved.

Now that the tax credit has been renewed, it’s a waiting game for manufacturers.

“Essentially when you throttle back ... it can take many, many weeks to get the pipeline going again,” Burga said Friday. “We expect that it might take several weeks and several months to settle.”

A tweak in the definition of the production tax credit by Congress is expected to help jump-start wind development: Companies won’t have to complete the construction of wind farms in 2013 to qualify for the credit; they just have to start them.

An extension that didn’t allow for completion of projects would have been useless for the wind industry, Sigrist said. “That wouldn’t have helped us at all because it’s too late to complete a large project in this year,” he said.

The American Wind Energy Association said in a news release this week that companies that manufacture and install wind turbines asked Congress to alter the legislation because it takes 18 to 24 months to develop a wind farm.

The tax-credit legislation “is structured to account for the late timing of passage,” the group said in a statement. “While development activity, including starting construction, for projects in 2013 and beyond was halted due to the uncertainty around the [tax credit] - now with clarity in place, the development activity will be re-activated and projects can move toward starting construction.”

U.S. Sen. John Boozman, R-Ark., said one-year extensions of tax breaks make it difficult for businesses to plan, but the wind-power tax credit was only extended for a year “because of the severe budget crunch we are under.”

Boozman and other members of Arkansas’ congressional delegation approve of the tax credit’s extension even if they didn’t vote for the “fiscal cliff” deal, which averted a series of automatic tax increases and spending cuts.

“I support the extension and I’m glad it went through but I just couldn’t vote for the bill,” said U.S. Rep. Tim Griffin, R-Ark. “I don’t support it permanently, but the federal government has intervened in the market and given credit over the years, and to take it away all at once and not give time to adjust is not the right thing to do.”

Front Section, Pages 1 on 01/05/2013