But His $12 Billion Bailout Will Only Delay the Day of Reckoning
Last Wednesday Sen. Mark Udall – Big Wind’s best friend in Washington – praised the stealthy extension of federal wind subsidies as a lifeline that ”gives manufacturers in Colorado and throughout North America the signal they need to create jobs, make capital investments in the United States, and ensure that wind energy remains a strong part of our national energy strategy.” He trotted-out the usual dubious claims about the 5,000 Colorado jobs that hung in the balance if the subsidies hadn’t been continued (a wind industry-inflated myth now accepted as fact, even by reporters). He giddily tweeted-out invitations for wind welfare supporters to pat him on the back for this backdoor inclusion of energy pork in the fiscal cliff “deal,” as if taking personal credit for a collective lapse of fiscal responsibility. It seemed like a great day to be Mark Udall.
But just a day later, on Thursday, the Danish company Vestas left wind-blown scrambled egg on Udall’s face by announcing more cutbacks at one of the company’s Colorado facilities, raising the question of exactly what we’re getting for the $12 billion one year bailout of Big Wind. Recent months have seen many such announcements from Vestas, as the company slashed positions and hours, turning Colorado workers into pawns in a lobbying campaign for more funds. One thus expected that Vestas would be rushing people back to work in response to the welcome news from Washington. But that isn’t what happened. News of additional cutbacks seemed to contradict months of spin from the company and the senator.
Reported The Pueblo Chieftain:
Vestas officials confirmed Thursday they are cutting worker hours at two of the other plants in Colorado rather than lay off more employees. A new state law, sponsored by out-going state Rep. Sal Pace, D-Pueblo, allows those workers to get partial state unemployment benefits for 18 weeks.
Vestas has done the same thing for its workers at its two of its other three plants in Colorado, explained Andrew Longeteig, a Vestas spokesman. The company said this week that it has laid off 700 of its 1,800 workers in Colorado during the past year because of the congressional deadlock over the wind power tax credit. It’s estimated the Pueblo plant lost 90 of its 450 employees.
“Vestas is committed to its Colorado factories and treating its employees with respect,” Longeteig said in a statement Thursday. “Vestas’ four Colorado factories will continue to manufacture wind turbine components for the U.S. market as well as export to Canada and Latin America.”
News of additional cutbacks seemed to rudely contradict months of spin from the company and the senator. Clearly the problems plaguing Big Wind can’t all be fixed by throwing it $12 billion more in 2013, contrary to what Udall has been saying in the nearly 30 floor speeches he devoted to promoting additional subsidies. And even the one year extension approved as part of the fiscal cliff boondoggle won’t be enough for this insatiably government-dependent industry. The reprieve immediately set-off another round of lobbying, since Big Wind is much more prolific at generating political pressure than producing electrons, with industry representatives and media cheerleaders arguing that a one year extension isn’t enough, since it only prolongs the uncertainty supposedly holding back the industry.
The wind power reality Udall never mentioned in all his floor speeches is that the production tax credit, while marginally helpful to the never-ready-for-primetime industry players, hasn’t really been the primary driver behind Big Wind’s success in carving out a niche for itself. This also means it isn’t as vital to the industry’s survival as claimed. These companies will gladly take any federal largess they can get – that’s just the American way, right? But a much more helpful government intervention, and sop to the industry, are the renewable energy production quotas that states (including Colorado) have been approving, in a silly game of one-upmanship completely disconnected from market reality, cost-benefit considerations or common sense.
Roughly half of all states jumped aboard this bandwagon in recent years. Some have taken a voluntary, others a compulsory, approach. Proponents of such mandates simply toss random targets out there — 25 percent, 30 percent, 35 percent from renewables by 2016 – with little or no consideration of costs or consequences, especially for utility customers. The chickens come home to roost eventually, as they are coming home to roost in California, which is of course a trailblazer in this sort of reckless regulating. But these mandates have been an even greater boon to Big Wind than the tax credits, as the chart below helps show.
The industry has ebbed and flowed a bit as various direct subsidies have waxed and waned. But wind’s most sustained growth spurt coincided with the renewable energy portfolio fad that swept the states, mandating markets where little or no natural market existed.
Dr. David Dismukes, of Louisiana State University, examined the role various government interventions have played in the growth of the industry in a recent report, ”Removing Big Wind’s Training Wheels: The Case for Ending the Federal Production Tax Credit.” Here’s part of what the report had to say about renewable energy production mandates.
“The passage of the federal wind PTC in 1992 did not result in an explosion of new wind generation capacity. Rather, wind generation development languished until 1998, when about 226 MW of new wind generation capacity was brought on-line in that year alone. This was about the same time that many states began adopting “renewable portfolio standards” or what is commonly referred to as an “RPS.” Today, 30 states and the District of Columbia have RPS mandates and an additional seven states have voluntary goals, all of which cover wind and other renewable resources. Suppliers in these RPS states can fulfill their renewable obligations by either: (1) making cheapest electronic cigarette a direct financial investment in renewable generation; or (2) the purchase of a tradable “renewable energy certificate” (or “REC”).
Although a few states adopted RPS policies as early as the mid to late 1990s, most states enacted their RPS mandates between 2004 and 2007, long after Congress adopted the federal wind PTC. States typically classify a wide range of renewables as eligible to meet supplier RPS obligations. To date, however, wind generation accounts for 90 percent of all new renewable resources developed understate RPS programs. Therefore, the widespread adoption of RPS mandates has established a substantial and ever increasing market for wind that did not exist when the federal PTC was enacted in 1992.”
If future RPS requirements were to be fulfilled by wind, the wind market would grow to almost 130 GW of capacity through 2030, about triple the current 50 GW already installed (see Figure 3). As such, even post federal PTC expiration, the outlook for future wind generation development continues to be exceptionally favorable, underscoring the reality that wind no longer needs a federal wind PTC “crutch.” Further, and in a clear sign that wind development will continue without the PTC, NextEra Energy Resources, a major wind developer, stated in its most recent Third Quarter earnings call, “we signed our first PPA for 2013 U.S. wind project, a project that is not dependent upon extension of the PTC program…we see it as supportive of the view we have publicly expressed that there will continue to be a wind development business in the U.S. post-2012 even if the PTC program is not extended.”
But the wind PTC was extended, unfortunately, thanks to its 13th hour inclusion in the pork-larded abomination called the ”American Taxpayer Relief Act of 2012″ (an Orwellian example of doublespeak if ever there was one). Udall was giddy afterward, but the billions of dollars in additional new transfers this will mean, from taxpayers to wind welfare recipients, probably won’t dramatically change the trajectory Big Wind is following. That’s because other forces are a greater factor in its success or failure, as I pointed out in an earlier post:
“. . . direct subsidies are only one of the government preferences from which this industry benefits. It also enjoys a guaranteed market for its product in many states, thanks to renewable energy portfolio standards. The Pentagon is spending billions annually buying green energy, irregardless of what it costs. And Big Wind is, and has long been, the beneficiary of significant taxpayer “investment” in renewables-related R&D, of the type that’s gone on since the late 1970s at Colorado’s own National Renewable Energy Lab. . . . Big Wind today perches, fat and happy, on a 4-legged throne. It benefits not just from direct subsidies, but from government-mandated purchases, military purchases and federal R&D “investment.” That’s not “leveling the playing field” — it’s putting wind providers in a skybox. Surely wind can survive without one or two of these props, at a time when the country is approaching $17 trillion in debt and running annual deficits that top $1 trillion.”
So why is Vestas cutting back in Colorado, embarrassing Mark Udall, even though a new round of handouts was just approved? Because the company’s problems, like the industry’s problems, are bigger than a multi-billion dollar bailout can fix. Big Wind has been riding high on a government-induced bubble that’s in the process of busting, as the artificial and unsustainable market created by multiple government interventions contracts. Renewable energy quotas, Pentagon green energy purchases and other government interventions created explosive expansion, but the industry, freed from the competitive pressures of operating in a genuine (meaning free) market, appears to have grown faster than what can be sustained.
Potential overseas clients for wind energy hardware are drying-up, as Europeans, stung by renewable energy sticker shock and facing ratepayer backlash, are rethinking their commitments to feel-good energy gimmickry. Record low natural gas prices make it harder for renewables to close longstanding cost disparities. A stagnant national and global economy means energy demand is down. The state renewable energy standard fad seems to have peaked.
All this won’t spell the immediate demise of the renewables racket, since the industry has plenty of advocates, like Mark Udall, who will continue to find creative new ways to enable its dependency. But because all bubbles eventually burst, as the inevitable correction occurs, a major industry restructuring, and downsizing, is inevitable. All Udall has done is rob from the taxpayers in order to delay the industry’s day of reckoning, throwing good money after bad.
Would the PTC have been extended if it hadn’t been able to hitch a ride on the Fiscal Cliff Express? Maybe. But maybe not. Backers of the bailout certainly didn’t seem confident of success before the fiscal cliff “crisis” conveniently came along. It would have been a much harder sell to make, given the harsh fiscal realities that prevail, if it had to pass as a stand-alone piece of legislation. The shortcut presented by the fiscal cliff ”crisis” negated the need for actual debate on the PTC extension. That and a host of other porkish add-ons were loaded aboard the Fiscal Cliff Express as it barrelled through in the waning hours of 2012. It was a display of fiscal irresponsibility that Udall should be ashamed of, not be applauding.
Udall’s water-carrying for Big Wind doesn’t exactly constitute “shilling,” since I suspect he champions the cause as a true believer, who may just be blinded to all other considerations by the green-tinted glasses through which he sees the world. That makes him an easy mark for renewable energy racketeers who have no intention of functioning in a free energy market, or of weaning themselves from government largess. The fact that such a large share of Udall’s campaign contributions come from Washington lobbying shops that also serve green energy interests is I’m sure just happenstance. But at what point do Udall’s responsibilities to Colorado taxpayers trump his obsessive pursuit of expensive new energy fantasies that don’t make fiscal or market sense?