Need for tax breaks vexing

WIND FARMS: Subsidy opponents say taxpayer cash going to the rich

Money doesn't grow on trees, but it may grow on windmills.

The developers of the four proposed wind farms in Jefferson County could capitalize on tax breaks and incentives at the federal, state and local levels through their projects. Opponents say the subsidies take taxpayer money and give it to those who already are rich.

"It's the taxpayers and electric customers that are taken to the cleaners," said Glenn R. Schleede, a widely known wind power opponent who has worked for electric utilities and the federal Office of Management and Budget.

Supporters say the subsidies are needed to encourage environmentally friendly policy.

Carol E. Murphy, executive director of Alliance for Clean Energy New York, said, "Renewable energy is not going to happen unless those policies are in place."

In Jefferson County, potential local and federal tax breaks and state incentives will total $12.5 million for Iberdrola's Horse Creek Wind Farm, $13.8 million for BP Alternative Energy's Cape Vincent Wind Farm, $7.7 million for Acciona's St. Lawrence Wind Farm and $27.3 for Babcock and Brown's Hounsfield Wind Farm.

FEDERAL TAX CREDIT

The federal Production Tax Credit and state renewable energy credit system are based on a development's production.

The American Wind Energy Association's Web site says that wind turbines usually produce 25 percent to 40 percent of their rated capacity, so over a year, a farm rated at 100 megawatts likely would produce between 219,000 and 350,400 megawatt hours. The federal Production Tax Credit is $20 per megawatt produced. To be on the conservative side, then, proposed wind farms in Jefferson County would bring in about $5.5 million for Iberdrola, $3.5 million for Acciona, $6.2 million for BP Alternative Energy and $11.8 million for Babcock and Brown from the federal credit, which counts dollar-for-dollar against taxes the companies owe.

This development incentive is due to expire at the end of the year. Congress could reauthorize the program.

The end of the credit, Ms. Murphy said, "would be a major, major setback for all renewable energies."

When the credit expired previously at the end of 1999, 2001 and 2003, the installation of wind power dropped precipitously — from 73 percent after 2001 to 93 percent after 1999.

Opponents of wind power say the subsidies shouldn't be used in the first place.

"When you give subsidies, it disrupts the market forces and that's certainly the case with wind, too," Mr. Schleede said.

Ms. Murphy argues that all energy development is subsidized — even oil exploration.

"There's no free lunch on energy," she said.

STATE PAYMENTS

New York, like the federal tax credit, bases its incentive on actual power production. But it is a straight payment for production.

Renewable energy generators contract with the New York State Energy Research and Development Agency to provide a certain amount of energy at a set price.

The average amount per megawatt hour is $17, said Tom Lynch, NYSERDA's director of external affairs.

"They could be producing a lot more electricity than we're buying," he said.

If generators produce enough or aren't on line by a deadline, the company faces penalties.

Kevin C. Hale, senior project manager with NYSERDA, said, "They sign a contract and put up security, which is at risk if they don't come on line."

As in about 25 other states, New York buys the fact that this electricity is "green." They're called renewable energy credits. The contracts are paid by electric customers, through a surcharge on electric bills. The average surcharge has increased from less than $2 in 2006 to $3.30 in 2007 and $4.95 in 2008. The reason for the increase is the state goal of reaching 25 percent of the energy used in the state coming from renewable sources. Wind power is not the only source eligible for the program.

The state program, like the federal tax credit, lasts for 10 years and reassures potential investors that they will have a steady stream of income.

"It attracts private investment, because investors can see the state has a long-term commitment to renewable energy," Ms. Murphy said. "It shows investors, 'We're going to get at least some money from the REC payments.'"

LOW MARKET BIDS

She said wind generators, like hydropower generators, bid in the wholesale market at a very low price, which ensures that their energy will be purchased. So having at least $17 per megawatt hour guaranteed gives investors the assurance that they will make money.

After renewable sources bid in at low prices, oil and coal and other plants bid into the market at higher prices. All the generators are paid the same amount, which is the most that any single generator bids to get into the market.

Wind power opponents say the production from wind generators is not reliable and does not come at the time of greatest need.

"They produce at night in the cold months," Mr. Schleede said. "You can't count on windmills to be available at high-demand times, which are warm summer afternoons."

And as the subsidies continue, more of the interested developers are foreign-owned companies.

In Jefferson County, all four of the developers are based in other countries. Iberdrola is based in Spain, Acciona in Portugal, BP Alternative Energy in Great Britain and Babcock and Brown in Australia.

"I'd rather have that money stay in the U.S., in the hands of small towns in New York so people can spend it locally," Mr. Schleede said.