Wind Construction Collapses Without Tax Subsidy

By Editors

"I will do anything that is basically covered by the law to reduce Berkshire's tax rate," Warren Buffett told Fortune recently. "For example, on wind energy, we get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit."

Buffett's evaluation is being borne out dramatically as the wind construction industry collapses without the tax subsidy. Congress failed to renew the production tax credit in 2013 and the installation of new windmills plummeted from 8,385 megawatts in the 4th quarter of 2012 to 1.6 in the first quarter of 2013. The huge run-up at the end of 2012, of course, was driven by developers getting things into the ground to qualify before the credit expired. A similar blip occurred in the 4th quarter of 2013 when there was speculation that the tax credit might be renewed. This time the blip only amounted to 1,016 MW.

All this is still having an impact on electrical markets. In the rush to promote renewable energy, states generally require their independent systems operators to accept wind whenever it is available. But this undercuts conventional generation, particular in deregulated markets. Nuclear reactors are particularly hard hit because they run all the time. Coal plants are also damaged by too much ramping them up and down. Energy Future Holdings just went bankrupt trying to deal with the vagaries of this market. Germany is experiencing the same problems as its major utilities are reported losses for the first time since the end of World War II. Only Oklahoma is trying to deal with the problem by charging a premium for to windmills and solar collectors for their intermittency.

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