Tax credits add wealth to foreign wind firms

The windup

Eagle-eyed observers of this irregularly scheduled column recall that the previous article concerned U.S. taxpayers subsidizing Canadian ratepayers to the tune of $380 million if three U.S. wind farms are built to supply wind power to Canadians [Outpost, Nov. 1].

You may also recall that U.S. Rep. Denny Rehberg, R-Mont., said that he would move quickly to close the loophole and his opponent, Commissioner Bill Kennedy, refused to answer. Sen. Max Baucus, D-Mont., also refused to answer the question and his opponent, State Rep. Mike Lange, said that the subsidy was ridiculous and an insult to taxpayers.

Round two. When the merger of Babcock and Brown (the Australian finance cartel) was pending with NorthWestern Energy, the No. 1 objection received from concerned citizens was that they did not want to have foreign ownership of our energy infrastructure but preferred that investment dollars stay in the United States.

The pitch

The five largest wind farm developers in the United States (ranked by megawatts) are Iberdrola+Scotish Power/PPM (Spain), 6,027 MW; FPL (U.S.), 4,300 MW; AccionaWindpower (Spain), 3,133 MW; Babcock & Brown Wind partners (Australian), 1,631 MW; and Endesa (Spain), 1,500 MW. Yup, of the top five wind farm operators, only one is a U.S. firm.

The largest player, by far, in U.S. wind development is Spain. Overall, European companies are estimated by Emerging Energy Research to own 20 percent of all wind energy in the United States.

Interestingly, much of the wind power owned by Europeans is not built by them. In March 2007, a Portuguese utility EDP paid $2.7 billion for Horizon Wind Energy of Houston, Texas.

Recently Iberdrola acquired Energy East for $4.7 billion. Energy East is a fairly traditional natural gas and electricity company in the northeastern United States that serves 3 million people. But it has a sizable portfolio of renewable energy. Iberdrola profits have increased by 30.5 percent since entering the U.S. renewable market.

Foreign investment in U.S. utilities was, at best, blasé prior to 2004. From 2004 to 2006 it increased by 151 percent. European acquisition of U.S. “targets” (their word, not mine) is now approaching $200 billion per year. In 2003 in was $25 billion.

Why the 800 percent increase? These are very sophisticated investors who are making investments across an ocean when there are similar investments galore to be made on their side of the Atlantic.

When asked about this, David Nastro of Morgan Stanley’s-Global Power and Utility Group said that indeed the foreign investors seemed to be more focused on the U.S. tax code than on building new infrastructure.

The hit

So what changed? The Energy Policy Act of 2005 (EPA ’05). It’s better than the California Gold Rush and Oklahoma Land Rush combined, unless you are a ratepayer or a taxpayer, that is. In the EPA 05 is an extension of the Production Tax Credit of $19 per MW hour for wind power. In a nutshell, if you have taxable income, it is reduced by $19 for every megawatt of wind electricity for every hour it is produced. For the top five wind farm owners listed above that comes to about $10 billion.

The catch

Those $10 billion are not shifted to the deficit. They are shifted to regular taxpayers. Yup, even though none of the top five produce any electricity consumed in Montana, you still get to pay for it with your tax dollars.And what did you get for your tax dollars? Not much. By and large, nothing got built. Existing generation was bought, and the tax incentives were activated, making you a conscripted investor in their acquisition schemes and dreams. Guess that’s another loophole Congressman Rehberg can work on with Sens. Tester and Baucus. Of course, that $10 billion is gone with the wind.

Sliding home

Europeans are a bit more hard-nosed about wind power. They mandate that the wind farm operators equip their turbines with blades that can be trimmed back by 15 percent to help control line imbalance and if there is no market for the wind-generated electricity they aren’t quite as predatory. No such requirement in U.S. law. Or much of any requirements - just a mindless passing out of tax dollars.

Denny Rehberg, Jon Tester, Max Baucus and Brian Schweitzer have all referred to Montana as “the Saudi Arabia of wind,” a great cliché that lends itself well to a 30-second sound bite. And when the Saudi royal family rewards us $10,000,000,000 for buying their oil, I’ll believe it.