The Threat to Wind Energy / Tax Credits about to Expire Posing Huge Threat; Developers Will Have to Find New Sources of Capital

Article excerpt

ALTAMONT PASS, Calif. - From a windy ridgetop here, one can look out at 5,000 spinning wind turbines, where four years ago there w ere only cattle and rolling hills.

But the rapid growth of wind-produced energy here and elsewhere has been as much a response to generous federal and California tax credits as to any perceived energy crisis.

Those credits are about to expire, posing a huge threat to the fledgling wind energy business, and prompting debate on the role of tax policy in the development of new technology. To survive, wind energy developers will have to acquire new sources of capital, and generate sufficient revenues to pay their debts, something many may not be able to do.

""Next year, once every three months, a wind developer will bite the dust and every lender will see that,'' said John Eckland, whose Fayette Manufacturing Corp. built the first wind turbine installed at Altamont in 1981, and about 1,600 since. ""It will take a brave guy to take that information to his loan committee and explain why you're different.''

For some, failure of the wind energy companies would be no great loss. Critics say that many wind turbines are merely tax shelters that contribute little to energy production and often do not even work at all.

""They're not wind farms, they're tax farms,'' United States Rep. Fortney H. (Pete) Stark Jr., a Democrat whose district includes the Altamont Pass, has often said.

Others argue, however, that wind and other renewable energy producers must be nurtured to prevent a repeat of the oil shocks of the 1970s.

""The political leadership and the media have acted as if we didn't live through 1979,'' said Rep. Cecil Heftel, D-Hawaii, who in April introduced a bill that would extend tax credits, though at reduced levels, for three years.

The bill, similar to one introduced in the Senate by Mark O. Hatfield, R-Ore., is expected to come before the House Ways and Means Committee in the next two weeks, but is given little chance of passing because of the administration's push to end many tax credits.

While wind power cannot yet deliver electricity at costs competitive with other energy sources - some experts estimate that it may cost anywhere from 9 to 12 cents a kilowatt-hour, as opposed to the 7-cents-a-kilowatt-hour cost of oil and gas - proponents point to a recent study by the Electric Power Research Institute of Palo Alto, Calif., a research group financed by electric utilities. Thatstudy indicated that wind energy cannot only become competitive, but will in the 1990s be one of the cheapest sources of new power.

The federal tax credits that are scheduled to expire at the end of this year allow investors a 15 percent reduction in taxes for investments in alternate energy production. Wind energy investments are also entitled to the standard 10 percent investment credit, which might be eliminated by tax revision proposals currently before Congress. The California tax credit is also being phased out; it has already been reduced to 15 percent from 25 percent, and is set to expire at the end of 1986.

For a California investor in the upper tax brackets, the purchase of a typical $100,000 wind turbine can earn up to $50,000 in tax credits. And since some wind promoters finance up to 90 percent ofthe investment, the immediate return can be five times the original investment. Though the investment is not risk free, and the turbine has to work to receive the credits, the lucrative nature of the shelter has rapidly increased both the number of turbines installed and the power generated. …