In mid-August, Vestas, the world's largest manufacturer of wind power turbines, announced it would cut 20 percent of the workforce at its Pueblo, Colo., plant. Less than a week later, the company said it would lay off an additional 1,400 workers worldwide.
"It is always unfortunate to have to say goodbye to good colleagues in Vestas," said CEO Ditlev Engel, who added that 2013 promised to be an even tougher climate for wind power.
As investors, we look for growth stories, and until very recently, wind power had an exciting plot. The United States is now generating 20 times more electricity from wind than it did in 2000, and nearly nine gigawattsthe equivalent of nine nuclear power stationsare under construction.
Wind power provides more than nine percent of power generation in Colorado, 10 percent in Wyoming and more than 20 percent in South Dakota. That's good news for the economy, good news for the planet and good news for investors like us who are looking to build a cleaner energy future.
What happened to change the mood and plot of the story?
It comes down to policy. For years, the federal government supported innovation in the energy sector, funding everything from advanced oil-drilling techniques to more efficient wind turbine design. In the case of wind power, the United States also provides a tax credit of 2.1 cents for each kilowatt-hour of wind power produced, known as the Production Tax Credit.
The $12 billion tax credit has helped stimulate productivity and innovation in the renewable energy economy, and it keeps electricity costs low for consumers. Indeed, innovation has driven the cost of wind power down over 90 percent since 1980, resulting in wind being competitive on its own in a number of U.S. regions and near that level in many others. And unlike other energy sources, as wind prices drop they stay low: The fuel is free.
President George H. W. Bush signed the Production Tax Credit into law in 1992. However, after decades of bipartisan support, it's set to expire at the end of this year. If lawmakers do not act, it could bring the wind power economy nearly to a halt, putting tens of thousands of jobs on the line. And as the Vestas job cuts indicate, with each day of inaction the problem grows larger.
General Electric reported on July 20 that its turbine sales fell 37 percent in a year, attributing most of this decline to hesitancy around the tax credit. It's not just turbine manufacturers that are affected. Associated companies have benefitted from the Production Tax Credit, including suppliers, transporters, builders of transmission lines and many other service companies. Each of these companies has jobs at stake if the Production Tax Credit is not renewed.
The Mountain West region is one of the leading markets for wind jobs, with at least 10,000 in Texas and Colorado combined. Kansas is leading the way for new wind-power construction, with nearly 1,200 megawatts coming on line, but without certainty about the continuation of the Production Tax Credit, the whole wind supply chain is threatened. That's hundreds of millions of dollars of economic development thatin the absence of clear federal policybecomes much more difficult to achieve.
Uncertainty surrounding federal tax policy also leads to inconsistent investment cycles. This "boom and bust" mentality can lead to over-enthusiastic building cycles followed by reluctant financing and slowed project development. As a major manufacturer in the wind-energy sector, Vestas and other wind turbine companies have a material stake in consistent and supportive federal energy policy.
This is true for dozens of companies large and small including diversified giants like GE, sustainable investors such as our firms and our colleagues in the $10 trillion Investor Network on Climate Risk. Fortunately, this is an energy problem our nation's leaders can solve. Right now, the wind-power tax credit has strong bipartisan support in Congress and the backing of the current occupant of the White House.
Of course, what happens when the lame-duck Congress gets together after the election is anybody's guess.
Both writers live in Massachusetts and are contributors to Writers on the Range, an op ed syndicate of High Country News (hcn.org). Kristina Curtis is president of Green Century Funds; Matt Patsky is the CEO of Trillium Asset Management.