Prediction: Some wind developers will defraud the government in 2013

When the Congress decided to extend the Production Tax Credit for wind energy projects, they made a couple of changes to the law that provide a substantial temptation for unscrupulous developers to take the money and run.

While many sources describe the PTC as a $22 per megawatt-hour (indexed for inflation) tax credit provided to wind power operators for the first ten years that the system produces power, that is not the way it always works. The American Recovery and Reinvestment Act of 2009 included a provision in section 1603 for developers of qualified facilities (which did not include nuclear, by the way) to obtain a 30% of project cost tax credit payable within just months of being accepted as qualified.

These section 1603 grants have been far more commonly used than the traditional Production Tax Credit since 2009. The original justification for this nearly immediate grant in lieu of payments for actual electricity production spread over 10 years was that the “tax credit market” had evaporated during the Global Financial Crisis. Many of the previous investors in that market had no taxable income to report so they no longer had any need to purchase credits from wind developers. However, projects had to be placed in service before the 1603 grants were paid out.

With the extension to the PTC included in H.R. 8, the American Taxpayer Relief Act of 2012, Congress changed the eligibility for the grant from facilities that are placed in service before the deadline date to facilities the “construction of which begins before January 1, 2014”. It also extended the wildly popular (for obvious reasons) section 1603 grant program.

Unless I am misreading the current law, a developer could “begin construction” (a term that is not carefully defined in the law) and then apply for the grant to be awarded. Once the developer has received the payment of 30% of projected cost – which could be several hundred million dollars for a large project – it seems possible that the development could be halted with no planned recourse for the taxpayers to recover their money.

Even in the case where project developers are not frauds and really do complete their projects, the extension of section 1603 in the American Taxpayer Relief Act of 2012 means that the $12 billion that has been calculated as the cost of the act will not be dolled out over 10 years. Instead, it will be paid out almost immediately. After all, businessmen know that there is a time value of money, it is far more valuable if paid right away than if spread out over ten years.

I would love to have someone explain why my concerns are unfounded.

PS – I probably should not have limited my concerns to wind developers; Section 1603 applies to several other kinds of qualified facilities, including algae based biofuels produced by such financially strapped entities as ExxonMobil.

About Rod Adams

8 Responses to “Prediction: Some wind developers will defraud the government in 2013”

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  1. Daniel says:

    Wind energy is dead. Some of us have been pointing out that the nuclear industry was doing squat in terms of lobbying or marketing but Exelon, the country’s biggest nuclear generator, is on board to eliminate the PTC altogether and has spent 6.4 million in a lobbying push.

    The Chicago-based Exelon, which is also the 11th-ranked utility in terms of wind generation, has aggressively lobbied lawmakers to end right away the tax credit because the policy distorts electricity market prices and hurts the company’s bottom line.

    There is clout to fight wind but I must agree with Rod, the end is near and some will find a way to pocket on their way out.

  2. Josh says:

    Here in Australia, wind has had plenty of troubles. Fraud or not they haven’t lived up to expectations. Often during peak times of consumption, particularly high summer, wind turbine generation is at or near zero. The fact that so many are advocating the wind path worries me.

  3. Cpragman says:

    Scenario 1 – developers take money and don’t finish. Bad for taxpayer, but good for nuclear since the negative priced wind power never hits the market.

    Scenario 2 – similar to scenario 1. Huge public outcry (like solyndra). Same result.

    Scenario 3 – developer takes money up front, but FINISHES project. Without PTC, they must sell at cost. No negative priced wind hits the market. Good for nuclear.

    • Rod Adams says:

      In all cases, bad for taxpayers in the short to medium term.

      • Daniel says:

        In the long term, we will see who-how these non profitable wind mills will be decommissioned and dismantled, if ever.

        This I want to see. Because I think those skeletons are going to be left on plain sight to rot.

    • Rich Lentz says:

      Vermont has started to worry about the fact that the industrial wind farms are cutting the tops off of their beautiful mountains and clear-path cutting for roads and transmission lines for these eagle cuisinarts. Soon the mountains in VT will look like those in WV.

      • Rod Adams says:

        @Rich Lentz

        Meredith Angwin recently blogged about an effort in Vermont to place a three year moratorium on new wind farm developments.

        I highly recommend continuing to follow this topic. It is another one that should bring sone cognitive dissonance to the good people who sincerely WANT to make the world a better place, but who have been deluded by the ads and the propaganda to believe that building wind energy collectors on an industrial scale will help reach their goals. Instead, it is a dramatic distraction by the people who really do not want to allow nuclear fission, the truly ecological energy source, to gain traction.

  4. Josh says:

    Here in Australia, there is an emphasis on wind generation and development in other renewable technologies despite their many and massive disadvantages. There is a mistaken belief that groups behind these developments have not and could not engage in fraud and that these systems are 100% clean and failsafe. This is where the lack of balance in the energy debate lies. I for one think that SMRs could go a long way to alleviating our energy problems and water issues (through desalination and cogeneration principles)