Lapsed Tax Credits Leave Renewables Twisting in the Wind

Turn to the nation's most objective and informative daily environmental news resource to learn how the United States and key players around the world are responding to the environmental...

By Brian Dabbs

The Bergey Windpower Co. factory south of Oklahoma City can produce 1,500 small-scale turbines annually. But current output is only a fraction of that capacity.

So now the pioneer in the wind energy industry is bracing to pare down staff. The company’s struggles are partially due to the low price of small solar modules, which are helping that industry take the renewable energy sector by storm at the expense of wind.

But a big drop in sales for Bergey is also due to tax policy.

Small wind turbine producers such as Bergey are facing dire times because Congress allowed a wind installation tax credit to lapse at the beginning of 2017, while renewing credits for solar. And the lapse isn’t restricted to wind. Geothermal pumps and fuel cells industries also lost the credit, triggering huge sales hits that are putting the future of a wide range of companies and their employees at risk.

Legislative efforts to restore the credits are afoot, but Republican congressional leaders aren’t homing in on them.

Now producers of these “orphan” technologies are competing with a solar industry that reaps a 30 percent incentive as a result of its tax credit. That means a $30,000 solar panel installation will cost a homeowner $21,000 in the end. A $30,000 geothermal installation will cost the homeowner the full amount, as will a $45,000 wind system.

‘They’re Not Buying’

So Mike Bergey, president of the Norman, Okla., company, is now peddling only a few residential turbines to deep-pocketed clients.

“Our bread and butter customers were a guy who drives a truck and his wife is a nurse—just straight middle class. They’re not buying,” he told Bloomberg BNA. “We saw a step change. We’d been on a slide, and then we hit a cliff.”

Karl Bergey, Mike’s father and a former University of Oklahoma professor who designed the Piper Cherokee aircraft, led the company to national prominence in the 1970s. Bergey Windpower took shape during the oil embargo crisis then, and also during the rise of the nuclear industry, which aimed to dominate alternative energy.

Bergey turbines boomed, but then dwindled in the 1980s after oil prices reached historic lows. Now solar modules—whose tax credits Congress extended in late 2015 in a package that omitted the orphan technologies—are posing a real threat to the Bergeys’ company, its staff, and the broader small-wind industry.

Bergey’s staff now numbers 28 employees, a decline from 50 in recent years.

“We’ll take short-term losses to try to retain skilled staff,” Mike Bergey said, while cautioning about the sustainability of that approach. “If they don’t fix this tax credit, we will have to make adjustments. We will have to start cutting more people.” Lloyd Ritter, a spokesman for the Distributed Wind Energy Association, said the loss of tax credits also cut sales for other small wind producers.

Disparity with Solar

Wind energy, solar and geothermal pumps reduce their owners’ need to purchase electricity from the grid, and also help reduce carbon emissions driving global warming.

The three technologies compete for market share, and natural conditions traditionally play a large role in customer choice. Windier areas generate more wind energy, and sunnier areas generate more solar energy. Subsurface geology and water, as well as the actual availability of land to put a borehole in place, are factors for geothermal pumps.

Geothermal pumps heat and cool buildings by sourcing subterranean temperatures, which are typically colder in the summer and warmer in the winter than temperatures at the surface.

“In some areas, you’re going to get a better return doing geothermal, and in other areas, you’re going to get a better return if the homeowner is putting in small wind,” J.P. Delmore, a lobbyist for the National Association of Home Builders, which supports the orphaned credits, told Bloomberg BNA. “But if you’re dealing with your client you say ‘Well, it makes sense for you to do geothermal, but solar would be cheaper,’ most are going to say ‘Let’s do solar.’”

The concern, he said, is that the other technologies won’t be purchased if there isn’t tax parity.

Solar credits for both residential and commercial installation are in effect through 2021. Those credits award residential and commercial owners who want to install solar modules with a 30 percent credit, a rate which begins to phase out in 2019. From 2022 on, commercial credits are authorized at 10 percent.

That means those in the market right now will pay nearly a third less for a solar product but the full price for all geothermal and fuel cells, as well as residential wind. Steve Smith, the president of Enertech Inc.,—a geothermal pump producer and distributor with a 80,000-square-foot factory in Mitchell, S.D.—said that disparity is taking a hatchet to his sales.

The company sold 42 percent fewer pumps from Jan. 1 to the end of July this year compared to the same time period last year, Smith told Bloomberg BNA. That translated to 19 job cuts this year at the Mitchell factory, leaving 33 employees—about a 37 percent reduction.

“These are real jobs here in America that are being robbed because they let solar have the tax credit and we have to compete against them,” Smith said. “It seems like the craziest penalty against American workers.”

Rep. Kristi Noem (R-S.D.), the state’s lone House member, supports plans to reinstate the credits. A spokesman for Sen. John Thune (R-S.D.) didn’t comment directly on the credits, and a spokeswoman for Mike Rounds (R-S.D.) didn’t respond for comment. But Smith said Rounds personally pledged support. The two hunted together at an event during Rounds’ tenure as governor.

Solar Sales Up, Firms Falter

Residential solar installations continue to surge.

A banner year in 2016 led to the installation of more than 2.6 gigawatts capacity of residential solar, as well as more than 1.6 gigawatts capacity of commercial, according to Solar Energy Industries Association and GTM Research. The 2016 spike is due to an installation rush brought on by fears that the solar credit would expire as the credit for the other technologies ultimately did, SEIA spokesman Alex Hobson told Bloomberg BNA.

The installation rate is expected to fall slightly this year but still edge out pre-2016 levels by substantial margins. The first quarter of this year featured more than 560 megawatts capacity of residential and nearly 400 megawatts capacity of commercial. Solar prices also fell by nearly 20 percent during 2016, SEIA says.

But despite the solar installation growth, U.S. companies are faltering, and in some cases going belly up. SolarWorld AG and Suniva Inc.—both of which filed for bankruptcy earlier this year—are pushing the U.S. to slap tariffs on foreign imports of solar panels to staunch the domestic bleeding.

The Energy Information Association says the U.S. imported nearly 12.8 gigawatts capacity in 2016. The U.S. agency doesn’t break that number down by residential, commercial and utility services. Meanwhile, the U.S. installed roughly 14.8 gigawatts capacity in 2016—the majority of that for utilities.

Representatives from the other renewable sectors, such as Geothermal Exchange Organization President Douglas Dougherty, argue the current tax system benefits Chinese and other foreign producers of solar products over U.S. companies that produce renewable energy products that compete with solar.

Dougherty said Enertech, the South Dakota geothermal pump producer, is actually faring better than others. Residential sales across the industry are down 45 percent this year, Dougherty told Bloomberg BNA.

“You tell me what business suddenly loses 45 percent of their revenue and stays in business,” he said. “You’ve said goodbye to the geothermal heat pump industry.”

The tax disparity isn’t, however, sowing discord between solar and the other renewable sectors, industry representatives said. SEIA supports the restoration of the credits for the other sectors, Hobson said.

Revival Proves Elusive

A broad range of industry associations—in addition to the wind, geothermal and other technology-specific groups—also are asking Congress to reinstate the tax credits.

The American Farm Bureau Federation is pushing an extension of the commercial wind credit because farmers often use that technology. The National Association of Home Builders wants all the credits reinstated to provide home purchasers with as many options as possible to decrease energy costs. The National Rural Electric Cooperative Association, a collection of utilities, is aiming to incorporate more options into utility portfolios.

Those groups are lining up behind two bills: H.R. 1090 in the House and S. 1409, a similar Senate bill, that would put the credits back into effect.

Led by Rep. Tom Reed (R-N.Y.), the House bill has 104 co-sponsors, including many members of the tax-writing Ways and Means Committee. Bicameral negotiators are continuing to try to get reinstatement across the finish line.

“I’m eager to see the orphan energy tax credits extended in the very near future,” Sen. Charles Schumer (D-N.Y.), the minority leader, told Bloomberg BNA in a statement. “I will make every effort to see these provisions extended in a must-pass vehicle when we come back from recess.”

A spokesman for House Minority Leader Nancy Pelosi (D-Calif.) said a reinstatement would most likely be attached to a near-term omnibus appropriations package or tax reform. A spokesman, Drew Hammill, said that “virtually all Democrats” support reinstatement.

But similar plans have fell through in recent months as Reed and other lawmakers tried unsuccessfully to tack reinstatement of the credits onto fiscal year 2017 funding.

A spokesman for Senate Majority Leader Mitch McConnell (R-Ky.) declined to comment to Bloomberg BNA. Spokespeople for House Speaker Paul Ryan (R-Wis.) also didn’t respond to requests for comment.

Conservative Opposition

The revival of the credits certainly aren’t cheered on by all parties.

Americans for Prosperity, Citizens Against Government Waste, and other free-market groups continue to urge opposition to the incentives, arguing against any subsidies or tax breaks for energy technologies.

“The carve-outs and the loopholes that try to pick winners and losers in the energy industry are ultimately counterproductive,” Levi Russell, spokesman for Americans for Prosperity, told Bloomberg BNA. “We just don’t think it’s the role of the federal government to prop up industries.”

Some lawmakers, such as Sen. James Lankford (R-Okla.), agree.

“Senator Lankford has a long and established history of opposing credits,” D.J. Jordan, Lankford’s spokesman, told Bloomberg BNA. Lankford has introduced legislation in the past to ax all renewable energy production tax credits.

As an Oklahoma senator, Lankford represents Bergey on Capitol Hill. Meanwhile, Rep. Tom Cole (R-Okla.),—the House member whose district includes Norman, Oklahoma, where the company is located—signed onto the House legislation that would restore the tax incentives.

Energy Tax Package Takes Hits

A strategy to bundle the orphan revivals into a larger energy tax package has some supporters in Congress. That approach would team the orphan credits up with early renewals of a nuclear production tax credit and a credit for carbon sequestration, which involves capturing carbon dioxide emissions from a power plant and storing them permanently underground.

Sens. Lindsey Graham (R-S.C.), Tom Carper (D-Del.), and Heidi Heitkamp (D-N.D.), among other senators, have expressed interest in that strategy, as have some House members. That coalition of lawmakers, however, took a hit in recent days. On the heels of an announcement that South Carolina utilities pulled the plug on construction of two nuclear reactors at the V.C. Summer plant, Graham abandoned his support for the nuclear credit.

The strategy is based on broadening the buy-in, and the absence of the South Carolina delegation in the coalition would be a loss. But broadening that buy-in too much may also torpedo support from the environmental community.

“We absolutely support the renewable energy industry and the important effect that it has on our economy,” Lukas Ross, a climate and energy campaign official at Friends of the Earth. “What we don’t support is bad faith deals that involve tiny, marginal support for wind energy and other renewables in exchange for shoveling cash into the troughs of nuke and clean coal boondoggles.”

Broad Tax Overhaul Murky

Republican lawmakers often argue that a comprehensive overhaul to the tax code—which is now the foremost White House priority following the collapse of healthcare legislation—replaces the need for tax carve-outs akin to the orphaned energy credits.

But a number of analysts say a tax overhaul would be a particularly difficult legislative task. And some members of the renewable industry don’t see it as a lifeline.

“There’s this concept that tax reform will fix our problem. Tax reform does not fix our problem,” Smith, the president of Enertech, said. He added that a tax overhaul likely wouldn’t trash the next five years of solar credits. Republicans have said they don’t aim to reel back the energy incentives already in place.

Holding On

Representatives for the orphaned technologies are quick to say their industries are on the brink. Industry members, however, are pledging perseverance.

Bergey says his company has been in business for 40 years and aims to stay in business for another 40. The Oklahoma native also finds some levity in the doldrums.

“My wife is in healthcare, and the joke is ‘all bleeding eventually stops,’” he said.

To contact the reporter on this story: Brian Dabbs in Washington at bdabbs@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Environment & Energy Report