[Senate Hearing 112-728]
[From the U.S. Government Publishing Office]
S. Hrg. 112-728
RENEWABLE ENERGY TAX INCENTIVES: HOW
HAVE THE RECENT AND PENDING EXPIRATIONS
OF KEY INCENTIVES AFFECTED THE RENEWABLE
ENERGY INDUSTRY IN THE UNITED STATES?
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HEARING
before the
SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE
of the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MARCH 27, 2012
__________
Printed for the use of the Committee on Finance
U.S. GOVERNMENT PRINTING OFFICE
79-489 WASHINGTON : 2012
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20402-0001
COMMITTEE ON FINANCE
MAX BAUCUS, Montana, Chairman
JOHN D. ROCKEFELLER IV, West ORRIN G. HATCH, Utah
Virginia CHUCK GRASSLEY, Iowa
KENT CONRAD, North Dakota OLYMPIA J. SNOWE, Maine
JEFF BINGAMAN, New Mexico JON KYL, Arizona
JOHN F. KERRY, Massachusetts MIKE CRAPO, Idaho
RON WYDEN, Oregon PAT ROBERTS, Kansas
CHARLES E. SCHUMER, New York MICHAEL B. ENZI, Wyoming
DEBBIE STABENOW, Michigan JOHN CORNYN, Texas
MARIA CANTWELL, Washington TOM COBURN, Oklahoma
BILL NELSON, Florida JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware
BENJAMIN L. CARDIN, Maryland
Russell Sullivan, Staff Director
Chris Campbell, Republican Staff Director
______
Subcommittee on Energy, Natural Resources, and Infrastructure
JEFF BINGAMAN, New Mexico, Chairman
JOHN D. ROCKEFELLER IV, West JOHN CORNYN, Texas
Virginia CHUCK GRASSLEY, Iowa
KENT CONRAD, North Dakota PAT ROBERTS, Kansas
JOHN F. KERRY, Massachusetts MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
BILL NELSON, Florida RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware
(ii)
C O N T E N T S
__________
OPENING STATEMENTS
Page
Bingaman, Hon. Jeff, a U.S. Senator from New Mexico, chairman,
Subcommittee on Energy, Natural Resources, and Infrastructure,
Committee on Finance........................................... 1
Cornyn, Hon. John, a U.S. Senator from Texas..................... 2
WITNESSES
Zindler, Ethan, head of policy analysis, Bloomberg New Energy
Finance, Washington, DC........................................ 4
Purcell, John, vice president-wind energy, Leeco Steel, Lisle, IL 5
Zycher, Dr. Benjamin, visiting scholar, American Enterprise
Institute, Washington, DC...................................... 7
Ragan, John P., vice president of business development and
government affairs, TPI Composites, Scottsdale, AZ............. 10
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Bingaman, Hon. Jeff:
Opening statement............................................ 1
Prepared statement........................................... 23
Cornyn, Hon. John:
Opening statement............................................ 2
Purcell, John:
Testimony.................................................... 5
Prepared statement........................................... 24
Ragan, John P.:
Testimony.................................................... 10
Prepared statement........................................... 26
Zindler, Ethan:
Testimony.................................................... 4
Prepared statement........................................... 34
Zycher, Dr. Benjamin:
Testimony.................................................... 7
Prepared statement........................................... 38
Communications
The American Institute of Architects............................. 61
Biomass Fuel Company, LLC........................................ 67
Biotechnology Industry Organization (BIO)........................ 72
National Biodiesel Board (NBB)................................... 81
National Hydropower Association.................................. 85
Nuvera Fuel Cells, Inc........................................... 89
Third Way Progressives........................................... 91
Window and Door Manufacturers Association........................ 101
(iii)
RENEWABLE ENERGY TAX INCENTIVES:
HOW HAVE THE RECENT AND PENDING
EXPIRATIONS OF KEY INCENTIVES AFFECTED
THE RENEWABLE ENERGY INDUSTRY
IN THE UNITED STATES?
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TUESDAY, MARCH 27, 2012
U.S. Senate,
Subcommittee on Energy, Natural
Resources, and Infrastructure,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 2:45 p.m.,
in room SD-215, Dirksen Senate Office Building, Hon. Jeff
Bingaman (chairman of the subcommittee) presiding.
Present: Senators Cornyn, Carper, and Thune.
Also present: Democratic Staff: Ryan Martel, Staff
Director, Subcommittee on Energy, Natural Resources, and
Infrastructure. Republican Staff: Andrew Siracuse, Tax Counsel.
OPENING STATEMENT OF HON. JEFF BINGAMAN, A U.S. SENATOR FROM
NEW MEXICO, CHAIRMAN, SUBCOMMITTEE ON ENERGY, NATURAL
RESOURCES, AND INFRASTRUCTURE, COMMITTEE ON FINANCE
Senator Bingaman. Why don't we get started here? Thank you
all very much for coming. Today, the hearing is to try to
understand how recent and pending expiration of key tax
incentives affects deployment of renewable energy facilities,
energy efficiency measures, and advanced biofuels.
Last December, the same subcommittee met to consider the
effects of short-term extensions and frequent expirations on
the renewable energy industry. Almost all the witnesses argued
that intermittent incentives severely stunted the promise of
clean energy in the United States. They illustrated how the
constant threat of expiration prevents the build-out of a
robust manufacturing sector and supply chain, which are the
pieces of this energy mix that create the majority of the jobs
in these industries.
We undoubtedly will get some testimony on the extent of the
support that is being provided. I gather the Congressional
Budget Office recently issued a brief on this subject, which
stated, ``Tax preferences for energy were first established in
1916. Until 2005, they were primarily intended to stimulate
domestic production of oil and natural gas. It was not until
2006 that an increasing share of energy-related tax
expenditures began to shift to renewables and to energy
efficiency.''
So, as I say, I am sure we will get testimony on this very
point.
Clean energy and energy diversity, both of which I think
are important goals for our country, have not always been
perceived as a partisan issue. In fact, the legislation that
most directly put the U.S. on the path toward clean energy and
toward efficiency was the 2005 energy bill, which, of course,
was conceived of and written and passed by a Republican-led
Senate and a Republican-led House. It was signed by President
Bush.
Much of today's discussion will center on the credit for
wind that expires this year, and I think we need to understand
the effect of not going ahead and extending that.
There are other important incentives for advanced biofuels,
for energy efficient homes, for buildings and appliances, for
combined heat and power, for fuel cells for advanced vehicles,
and these are all the subject of our hearing today.*
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* For more information, see also, ``Present Law and Analysis of
Energy-Related Tax Expenditures,'' Joint Committee on Taxation staff
report, March 23, 2012 (JCX-28-12), https://www.jct.gov/
publications.html?func=startdown&id=4414.
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[The prepared statement of Senator Bingaman appears in the
appendix.]
Senator Bingaman. So let me go ahead and defer to Senator
Cornyn for any comments he has, and then I will introduce our
panel of witnesses.
OPENING STATEMENT OF HON. JOHN CORNYN,
A U.S. SENATOR FROM TEXAS
Senator Cornyn. Well, thank you, Mr. Chairman, for holding
this very important hearing today. I am pleased to join you,
and I think we demonstrate bipartisan support for an ``all of
the above'' energy policy. And this is certainly an important
part of it.
I am struck a little bit by the irony, though, of what is
happening on the floor of the Senate as we are talking about
these particular alternative energy provisions, the so-called
Repeal Big Oil Tax Subsidy Act, which will do nothing to lower
the price of gasoline at the pump. It will not provide any
relief for consumers at all. All it will do is raise taxes on
the domestic oil and gas industry, which will then be passed on
to the consumer. And, like I said, it will make things worse
rather than better.
We can do better than that, and I, for one, believe that we
need to get all of these various tax provisions on the table,
as the President's own bipartisan commission recommended, and
take a look at them and see which ones make sense and which
ones do not.
One of the challenging issues we have is that many of these
tax provisions, albeit temporary at the time they were passed,
have been renewed without enough scrutiny, and that is why I
think this hearing is so important, examining whether they are
needed in order to get infant industries started and new
technology, or whether the time has long since passed for us to
sunset them.
Finally, I just want to mention, also, the Keystone XL
pipeline, which I am, unfortunately, disappointed that the
President has continued to not approve, despite his appearance
at Cushing, OK the other day, where he talked about the one-
third of the pipeline that does not require his permission to
be completed and which does not provide additional oil.
My constituents in the Port Arthur area, where we have some
of the largest refining capacity in the country, would love to
have 700,000 barrels of Canadian oil come through the Keystone
XL pipeline so that they could refine that into gasoline and
other petroleum products.
In Texas, like New Mexico, we know the importance of a
stable, secure supply of affordable energy, and we are blessed
with a diverse array of energy sources and industries providing
solid employment to Texans, while supplying the Nation.
Many, of course, will argue for extensions of valuable tax
incentives for their industry, and I get that, I understand
that, but I think the question should be--and I trust our
witnesses will address this--are we getting the best bang for
our buck? And which ones should we extend? Which ones should we
modify? Perhaps which ones should we sunset, and which ones
should we eliminate? That remains the duty of Congress to
answer.
An analysis by the Congressional Research Service for
energy-targeted tax incentives shows that, while the majority
of U.S. primary energy production comes from fossil resources,
the majority of energy tax-related revenue losses are
associated with provisions designed to support renewables. And
that is perhaps predictable, because the oil and gas industry,
an established industry, does not need these tax credits or
subsidies, as the President sometimes uses the word. It does
not deserve to be treated any better or any worse than other
business in America. But the fact is, most of the tax-related
revenue losses are associated with renewable sources.
If we want to put all the tax reforms on the table, then I
think these are some of the relevant considerations. And I
mentioned the President's own fiscal commission that argued
that, in order to make our tax code and America more
competitive--we will have the highest corporate tax rate in the
world once Japan lowers its rate--we need to eliminate a lot of
tax expenditures, flatten the code, make it more growth-
oriented, and make us more competitive in a global economy.
I look forward to hearing from the witnesses. And thank
you, again, Mr. Chairman.
Senator Bingaman. Let me briefly introduce our four
witnesses here. Starting on the left there is Mr. Ethan
Zindler, who is the head of policy analysis for Bloomberg New
Energy Finance here in Washington. Second is Mr. John Purcell,
who is vice president of wind energy with Leeco Steel. Thank
you for being here. Dr. Benjamin Zycher is a visiting scholar
with the American Enterprise Institute. Thank you for coming
today. And Mr. John Ragan is the vice president of business
development and government affairs with TPI Composites in
Scottsdale, AZ.
If each of you could take 5 or so minutes and give us the
main points you think we need to understand about this set of
issues, and then I am sure both Senator Cornyn and I will have
some questions.
Mr. Zindler, did you want to go first?
STATEMENT OF ETHAN ZINDLER, HEAD OF POLICY ANALYSIS, BLOOMBERG
NEW ENERGY FINANCE, WASHINGTON, DC
Mr. Zindler. I will. Thank you very much, Senator. In the
interest of time, I am going to read most, but not all of my
written remarks, and all of that will go in the record.
Good afternoon, Senators and fellow committee members,
ladies and gentlemen. Thank you for the invitation to allow me
to share my thoughts here today.
I come here today in my role as head of policy analysis of
Bloomberg New Energy Finance, a market research firm focused on
the clean energy sector. Our clients include major investment
banks, wind, solar, and other clean energy equipment makers,
venture capitalists, and project developers, plus major energy
companies and the oil majors. Our primary mission as a firm is
to provide timely, accurate, and actionable data and insight on
investment technology and policy trends in clean energy.
My remarks today represent my views alone as a clean energy
industry analyst. They do not represent the corporate positions
of either Bloomberg LP or Bloomberg New Energy Finance. In
addition, they do not represent specific investment advice and
should not be construed as such.
The subject of today's hearing is the role of tax credits
in today's development of technologies related to power
generation and efficiency and those related to transport fuels.
I would argue that tax credits have played different roles in
these two areas and should be addressed separately.
Before touching on the tax credit issue, however, I would
like to update the committee on clean energy investment trends
globally. Last year, the industry set a record, attracting $260
billion in new outside investment, up from $54 billion in 2004.
In the fourth quarter of last year, we counted the 1 trillionth
dollar of new investment in clean energy globally.
The U.S., despite featuring strong supports in some States,
has not enshrined long-term national targets or goals for clean
power generation. Still, the U.S. actually led the world in
attracting new investment last year for clean energy with over
$55 billion in new funds deployed here, mostly in private
money. This marked the first time since 2008 that the U.S. did
not finish second to China in new clean energy capital
attracted, and we will detail more of this in a report with the
Pew Center in a few weeks.
There is little to suggest that the U.S., however, will
maintain its leadership position this year or next. Last year's
surge in private U.S. investment was a direct reaction to
policies that were due to expire in 2011 or 2012. These
included the 1603 Treasury grant program, the 1703 loan
guarantee program, and the production tax credit, or PTC, which
benefits primarily the wind industry. And these three programs
had the effect of frontloading U.S. renewables investment into
calendar year 2011. In 2012 and 2013, the echo effect of this
frontloading will almost certainly be felt.
With that as context, let me turn to the PTC, which has
long played a critical role in the development of the U.S. wind
industry since being established by Senator Grassley and others
in 1992. The credit has expired 3 times in the last dozen
years. On each occasion, the result has been a sharp drop in
new installations for wind.
We are now on a course for another such fall next year.
Bloomberg New Energy Finance forecasts approximately 9,500
megawatts of new power generating capacity will be installed in
2012, but just 500 megawatts will be installed in 2013. That
would see the industry go from registering one of its best
years on record to one of its very worst since 2004.
What is likely to make the upcoming PTC expiration more
dramatic is that the U.S. now has substantially more
manufacturing capacity on its own soil. When the PTC expired at
the end of 2003, resulting in a sharp drop in installations in
2004, there was insufficient domestic manufacturing to meet
wind turbine demand, meaning project developers were importing
final goods, mostly manufactured in Denmark, Germany, or Spain.
When the PTC expired then, manufacturers in Europe mostly felt
the pinch.
This time, the U.S. has over 13,000 megawatts or 13
gigawatts of final turbine assembly capacity on its soil.
Again, without the PTC, we expect just .5 gigawatts of demand
for that equipment in the U.S. in 2013.
All of that said, I would note that extending the PTC will
not be a panacea for the U.S. wind market, which will remain at
overcapacity in 2013, regardless of the tax credit. We forecast
that, if Congress would extend this credit now, approximately
3.5 gigawatts of new capacity would get built in 2013. This
falls far short of matching the over 13 gigawatts of domestic
manufacturing capacity.
The wind industry has made major strides in both improving
the efficiency of industrial scale equipment and reducing
capital costs. The result is that wind developers can now sell
their power at between $30 and $70 per megawatt hour and earn
respectable returns in the U.S.
In some part of the world, including some parts of the
U.S., wind can already compete and beat out its fossil rivals
on cost, without the benefit of subsidies. However, the
industry today finds itself under pressure from low electricity
prices due to both relatively weak economic conditions and to
unusually cheap natural gas, which today is trading at its
lowest level in 2 decades.
The expiration of the PTC would add a third negative
factor. It would make what is likely to be a challenging year
considerably more difficult for the industry.
And with that, I see that my time is up, and I will
conclude my remarks. I am happy to answer any questions on the
subject matter touched on in the second half of my written
statement.
[The prepared statement of Mr. Zindler appears in the
appendix.]
Senator Bingaman. Thank you very much.
Mr. Purcell?
STATEMENT OF JOHN PURCELL, VICE PRESIDENT-WIND ENERGY, LEECO
STEEL, LISLE, IL
Mr. Purcell. Thank you, Chairman Bingaman, Ranking Member
Cornyn, and subcommittee members. My name is John Purcell, and
I serve as vice president-wind energy for Leeco Steel. I
appreciate the opportunity to speak briefly today about the
impact on Leeco Steel in the U.S. and the U.S. wind energy
sector due to the impending expiration of the renewable energy
production tax credit.
We at Leeco Steel feel it is imperative that the PTC is
extended in its full form as presented in S. 2201, the American
Energy and Job Promotion Act, which was recently introduced by
Senators Grassley and Mark Udall.
Leeco Steel is a wholly owned subsidiary of O'Neal Steel,
the largest privately held metals distribution company in the
United States, which is headquartered in Birmingham, AL. Leeco
is headquartered in Lisle, IL, a western suburb of Chicago.
Leeco Steel is a carbon, high-strength, low-alloy steel plate
distributor and processor, serving the United States, Mexico,
and South America from seven locations throughout these
regions. We have distribution facilities in Portage, IN,
Oshkosh, WI, Pittsburgh, PA, Chattanooga, TN, and Fort Worth,
TX.
Leeco Steel first began delivering steel plates and
fabricated plate products into the wind industry in 2004.
Revenues from the wind industry now account for nearly 40
percent of our company's total revenue. The wind business for
Leeco has become a keystone of our overall business and a
driver for development of our company. Leeco Steel has provided
hundreds of thousands of tons of steel plates to 12 tower
manufacturing facilities in 12 States across the U.S., most of
which have been built in the past 8 years.
The PTC has helped us to expand our company in the wind
industry and into new markets, and has helped us weather the
recent economic downturn. Since the early development of our
wind business, we have hired over 70 people in Leeco Steel to
help maintain these growth strategies that we have planned for
our company.
In the past 6 years, when there has been a certainty to the
PTC, our wind business and the wind industry overall have been
a major job creation success story. Of the 12 tower factories
mentioned above, 10 of these factories did not exist before
2002. Taking an average of 250 employees per factory, that is
2,500 new good-paying jobs that were created in a very short
amount of time within our supply chain alone. This does not
take into account the thousands of additional jobs that exist
in the supply chain that supplies goods and services to each of
these 12 factories.
Because of the PTC, the U.S. wind industry overall has seen
tremendous growth and innovation. Wind energy now provides
nearly 3 percent of America's electricity, with that number
surpassing 20 percent in the State of Iowa.
Overall, wind energy has accounted for 35 percent of all
new electric generating capacity in the last 5 years. The wind
industry has generated investment upward of $20 billion
annually, which is greater than the economic impact on U.S. GDP
from Colombia, Panama, and the South Korea free trade
agreements combined.
Since the PTC was last allowed to expire, there was
approximately only 25 percent domestic content in each wind
turbine that was erected. Today, we have approximately 60
percent domestic content in each installed turbine.
With the uncertainty of an extension of a PTC, many of
Leeco's expansion plans are at risk. There have been high-level
discussions to increase the amount of steel plate capacity for
the wind business in the coming years. However, those
discussions have now gone silent, as there needs to be business
case certainty to move forward with such huge capital
investments.
In similar fashion, over the years, many plans to increase
wind tower production in the U.S. have been scrapped due to the
business case uncertainty caused by the on again-off again
nature of the PTC. The wind industry as a whole has already
seen layoffs as a result of this uncertainty.
Many plans to add existing facilities or invest in new
facilities are on indefinite hold or have been scrapped
altogether. Industry-wide, 37,000 jobs will be lost if the PTC
is not extended.
It is my opinion that the supply chain was built and
billions of dollars invested in this industry due to companies'
expectations of a long-term PTC in place that would allow for
stable growth in the wind energy sector for many years to come.
Major factories have been established from coast-to-coast, and
many North American headquarters have been established in
cities such as Chicago, Portland, OR, and Denver. Without an
extension of this PTC, all the assets are at premium risk of
being shuttered or dramatically downsized.
With an immediate extension of the PTC, the development and
construction of these turbines can continue as planned. The
tens of thousands of jobs that can be created with this
extension will allow the wind industry not only to continue to
be a leader in job creation, but help secure our Nation's
energy future by lessening the reliance on foreign sources of
energy. The PTC is also crucial for regaining our Nation's
leadership in new technology innovation that will keep our
economy competitive.
The wind industry is on the verge of becoming competitive
without the PTC, but failing to extend the PTC immediately will
prevent us from finishing the job.
Again, thank you for the opportunity to be here today to
hopefully give a little insight into the role of manufacturing
that has been created in this country to support an industry
that is on the cusp of being fully competitive with all major
sources of electricity generation.
Thank you.
[The prepared statement of Mr. Purcell appears in the
appendix.]
Senator Bingaman. Thank you.
Dr. Zycher, go right ahead.
STATEMENT OF DR. BENJAMIN ZYCHER, VISITING SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Zycher. Well, thank you, Mr. Chairman and Ranking
Member Cornyn. I am very pleased to have this opportunity to
offer my views on why renewable energy subsidies should be
abandoned.
I have submitted a formal statement for the record on the
economics and policy analytics of renewable electricity. Today
I will concentrate on three central themes, which generally are
applicable to biofuels and related topics as well. At the end,
I will be very pleased to address any questions that you may
have.
The first theme: Despite very substantial policy support in
the form of direct and indirect subsidies at the Federal and
State levels, renewable electricity has only a small share of
the electricity market, with poor prospects for growth. This is
due to three inherent problems that public policies can
overcome only at very substantial cost to taxpayers,
ratepayers, and the economy as a whole, with the additional
adverse effect of significant market distortion.
These inherent problems can be summarized as the
unconcentrated energy content of wind flows and sunlight;
siting constraints and the higher transmission costs that
result; and the intermittency and unreliability problem, which
yields very large additional costs for backup generation. Each
of these inherent problems is discussed in detail in the
testimony that I have submitted for the record, but the central
effect can be stated quite simply. We have achieved the perfect
green trifecta--higher costs, less reliability, and more
pollution.
The second theme: The five central rationales that usually
are offered in defense of policy support for renewables are
deeply problematic. First, the infant industry rationale--
subsidies are needed to achieve scale economies and learning
efficiencies--is inconsistent with the existence of an
international capital market and with the cost evidence
published by the Energy Information Administration and by the
Department of Energy.
Second, the level playing field rationale--subsidies for
renewables are needed as an offset for subsidies enjoyed by
conventional generation--simply is incorrect. The subsidies per
megawatt hour enjoyed by renewable power are far greater than
those received by conventional electricity, both on average and
on the margin.
Third, the pollution or externality rationale ignores the
large effects of our environmental policies. It ignores also
the cost of backup generation imposed by renewable power upon
the electricity market, an adverse effect far greater than even
the highest estimates of environmental costs of conventional
generation reported in the peer-reviewed literature.
Fourth, the resource depletion or sustainability rationale
is incorrect simply as a matter of basic economics and is
inconsistent with the historical evidence in any event.
Finally, the green jobs rationale borders on the
preposterous. It confuses benefits for particular groups with
costs imposed upon the economy as a whole. It ignores the
adverse employment effects in the industries that lose when
government attempts to pick winners. There are, after all, no
free lunches. It ignores the adverse employment effects of
increases in electricity costs. It ignores the adverse
employment effects of the taxes needed to finance current and
future subsidies, and it is utterly oblivious to the starkly
adverse experience in Europe, which also was mesmerized by the
green jobs mirage.
Under the green jobs analytic framework, we could create a
lot of employment if we outlawed the use of heavy equipment for
digging ditches and mandated instead the use of shovels or, for
that matter, spoons. That sounds pretty ridiculous, does it
not? Well, there is no analytic difference between inefficient
ditch-digging and inefficient power generation as tools with
which to pursue increased employment--none.
The third theme: Ongoing and prospective developments in
the market for natural gas will worsen the already poor
competitive position of renewable electricity. Because of the
dramatic increase in natural gas supplies attendant upon the
application of hydraulic fracturing technology, the EIA
projection of gas prices over the next 20 years has declined by
about 20 percent, and the EIA projection of non-hydroelectric
renewable generating capacity also has declined by about 20
percent, specifically because of reduced competitiveness.
There was a headline in the Wall Street Journal dated
August 22, 1978 that read, ``Solar power seen meeting 20
percent of needs by 2000, Carter may seek outlay boost.'' That
forecast had a lot of company. In 1971, the National Academy of
Sciences argued that, ``It will take only another 50 years to
use up the great bulk of the world's supply of recoverable
petroleum liquids and natural gas.''
In 1977, the Executive Office of the President argued that
``supplies of oil are diminishing, and world oil will become
very scarce and very expensive in the 1980s.'' In 1978, the
executive director of the International Energy Agency argued
that, ``All available evidence points to a serious energy
crisis in the middle or late 1980s.''
In 1979, the Central Intelligence Agency argued that, ``The
world can no longer count on increases in oil production to
meet its energy needs.'' In 1980, the Secretary of Energy
argued that, ``Oil supplies will be running out in a couple of
decades.'' In 1979, the chairman of Exxon argued that, ``We're
going to be facing shortages and higher prices for years.'' In
fairness, the Exxon chairman made that statement on New Year's
Eve.
There is a dual theme common to all such predictions:
first, the substitution of the musings of experts,
policymakers, and professional commentators in place of market
forces and, second, a batting average of zero. As we look back,
we find the 1944 Synthetic Liquid Fuels Act; the 1954 Atomic
Energy Act; Project Independence in the 1970s; the 1978
National Energy Act; the 1980 Synthetic Fuels Corporation Act;
the 1980 Magnetic Fusion Energy Engineering Act; the 1992
Energy Policy Act and the production tax credit; the 1993
Partnership for New Generation Vehicles (the 80-mile-per-gallon
car was just around the corner); the 2005 Energy Policy Act
implementation of the renewable fuel standard, otherwise known
as the corn ethanol boondoggle; the 2007 Energy Independence
and Security Act; the 2008 Energy Improvement and Extension
Act; and the energy provisions of the 2009 American Recovery
and Reinvestment Act, that is, the stimulus legislation.
The eternal truth is that government subsidies for
renewable energy are swimming against a strong tide of market
forces and are doomed to the same failures that we have
experienced time and again. Moreover, such policies have the
more subtle effect of inducing ever more interest groups to
seek favors from government--not a salutary outcome.
Thank you again, Mr. Chairman, Ranking Member Mr. Cornyn,
and I will be, again, very pleased to address any questions
that you may have.
[The prepared statement of Dr. Zycher appears in the
appendix.]
Senator Bingaman. Mr. Ragan, why don't you go right ahead?
STATEMENT OF JOHN P. RAGAN, VICE PRESIDENT OF BUSINESS
DEVELOPMENT AND GOVERNMENT AFFAIRS, TPI COMPOSITES, SCOTTSDALE,
AZ
Mr. Ragan. Good afternoon, Chairman Bingaman, Ranking
Member Cornyn, members of the committee. Thank you for your
leadership on this matter and for the opportunity to join you
this afternoon to discuss the effect that the expiration of the
production tax credit, the PTC, will have on wind energy
companies like TPI Composites. I would also like to thank
Senator Grassley for reintroducing his bill, which will extend
the PTC.
I appear before the committee as the vice president of
business development and government affairs of TPI Composites
and as a corporate member of the American Wind Energy
Association.
TPI is a manufacturer of blades for wind turbine makers,
including GE Energy and Mitsubishi Power Systems. With roughly
1,400 U.S. employees, TPI is headquartered in Scottsdale, AZ
and operates factories in Rhode Island, Massachusetts, Mexico,
China, Turkey, and in Newton, IA, formerly the home of Maytag
appliance manufacturing.
The wind energy industry is a U.S. manufacturing success
story. U.S. wind experienced significant growth from 2004 to
2009, primarily due to a growing economy where energy
consumption increased, coupled with State and Federal policies
promoting production of renewable energy, State renewable
portfolio standards, and the Federal PTC creating reasonable
stability for wind developers and suppliers to invest in wind
farms and manufacturing plants.
That growth led to the industry creating over 75,000 U.S.
jobs and several thousand small to large U.S. companies
participating in the chain. It also led to the wind industry
becoming a significant provider of energy to consumers. Over
the past 5 years, wind represented 35 percent of all new
generating capacity installed. For 5 consecutive years, wind
has been second only to natural gas as a source of new
electrical capacity.
Through this time, investments in wind assets have topped
$20 billion a year. According to the U.S. Department of Energy
report just published during the George W. Bush administration,
wind power could provide 20 percent of U.S. electricity needs
by the year 2030. It is estimated that meeting this goal from
wind would create 500,000 U.S. jobs and reduce the current
electric sector and natural gas consumption by nearly 50
percent.
TPI Composites recognized the market opportunity years ago
and opened its first dedicated wind blade plant in 2002. Since
that time, we have added dedicated U.S. plants in Newton, IA
and a blade development center in Fall River, MA.
An important factor in our company's growth has been stable
and pro-market growth policies on the Federal and State levels.
During most of the 2000s, the Federal PTCs allowed companies
like ours to invest and grow supply chain plants around the
country, as demonstrated in the chart to my left. The result is
over 470 factories across 43 States in the U.S. providing wind
components.
The resurrection of Newton, IA is, we think, a terrific
American story. Newton is a city of roughly 16,000 residents
located 35 miles east of Des Moines. For many years, Maytag
manufactured washers and dryers and maintained its corporate
headquarters in Newton, employing about 3,500 people at its
peak.
After being acquired by Whirlpool in 2006, plans were made
to consolidate manufacturing into existing facilities in Ohio
and Mexico. The remaining 1,900 employees in Newton lost their
job, the last on October 25, 2007.
Because of the growth in the wind industry--and much of it
stimulated by the Federal PTC--TPI built a plant in Newton in
2008 and today employs almost 800 people in the Jasper County
region.
TPI was not the only company who recognized the
opportunity. Soon after our arrival in Newton, Trinity Towers
opened its facility on the abandoned Maytag campus and has
hired at least 125 employees to provide towers to many of the
same customers, wind farms, to which TPI supplies blades.
Second only to Texas for installed megawatts of wind, the
State of Iowa is now getting 20 percent of its electricity from
wind energy, which employs thousands of citizens across the
State. Newton and Iowa are shining examples of how to create a
U.S. wind energy hub, none of which could have occurred without
the PTC.
The opportunity to fulfill the wind energy industry
potential is too important and too large for the U.S. not to
forge ahead. Our work is not done yet. To achieve this desired
economic and energy growth, I urge the U.S. Congress to pass a
short-term extension of the PTC immediately, followed by long-
term debate on wind policy as part of structural tax reform.
Wind energy has been a source of important economic growth
over the past 7 years, but the outlook for 2013 is bleak due to
the pending expiration of the PTC. This tax credit has expired
3 times since 1999, leading in each case to dramatic declines,
70 to 90 percent in new wind power development.
Although the PTC technically expires at the end of 2012,
practically, it already has expired, as the delay in extending
the credits is reducing investment in wind energy projects
scheduled to come on line in 2013. Wind power plants and the
component supply chain require months, if not years of
planning. Wind investors and suppliers like TPI want to know
what tax policies will apply before they commit to projects for
the next calendar year.
A recent study by Navigant Consulting concluded that 37,000
jobs are likely to be lost with the effect of expiration of the
tax credits, along with more than $11 billion in clean energy
investment.
The PTC is an effective tool that drives as much as $20
billion a year in private investment and is at the heart of one
of America's fast-growing manufacturing sectors. The PTC is not
a handout. It is a business tax credit with funding based
solely on project performance, not evaluation by government
officials.
With a stable, low rate, American wind power has provided
more than a third of all new electric generating capacity
across the U.S. in recent years and has kept the industry on
track toward supporting 500,000 jobs by 2030.
The Federal tax code, as it exists today, is not a broad-
based proportionate system where every industry pays its own
fair share. Rather, it has specific tax incentives for all
forms of energy, most of which are set in policy to promote
economic growth. Trying to eliminate the PTC would place the
wind industry at a tremendous disadvantage compared to other
energy industries.
While an immediate, short-term PTC extension is needed to
stabilize the wind market, I also urge this committee and
Congress to work on long-term extension of the PTC as it
considers overall structural reform of the tax code.
I know there has been broad support that exists across the
political spectrum for extending the PTC. It is critical that
the Congress act quickly to find a way through the current
impasse and enact an immediate extension. We believe this is a
starting point for U.S. job creation, a healthier economy, and
a clean energy future.
I would be more than happy to answer any questions you
have.
[The prepared statement of Mr. Ragan appears in the
appendix.]
Senator Bingaman. All right. Well, thank you all very much
for your testimony. Let me start with a few questions.
Mr. Zindler, you have a projection there that in 2013, if
the PTC is not extended, you would see the wind energy
installations being reduced to 500 megawatts in 2013, I guess,
from 9,500 in the current year. Is that an accurate
description?
Mr. Zindler. Yes. That is accurate and in keeping with what
some of the panelists said. It is not that difficult to
forecast, only in the sense that you do have to place your
order for a wind turbine pretty far in advance, and we track
the contracts. And there are basically almost no orders for
2013 at this point.
Senator Bingaman. You are saying also, as I understand it,
that if we go ahead and extend the production tax credit and do
that in the near future, that you would still project that the
U.S. installation of wind power would just total 3.6 gigawatts
of capacity in 2013 as compared to 9.5 gigawatts in 2012.
Can you explain why, regardless of the extension, even if
Congress were to extend it, why you would expect such a
reduction in wind power projects next year?
Mr. Zindler. Yes. The industry is being hit by a couple of
factors. Most importantly, electricity prices are down due to a
less than robust economy and due to the fact that there has
been a surge of natural gas capacity that has come on line.
Those two factors are depressing power contract prices and
are making it unusually difficult for the wind industry to
compete, which is despite the fact that the industry has been
dramatically improving its efficiency and bringing down its
costs.
Not to go on too long, but the one factor that could kind
of very quickly change this picture is if the economy were to
grow faster than is anticipated and/or if natural gas prices
would pick back up, and many predict that natural gas prices
will rise, because the current cost--and I checked this
morning--of about $2.30 per million btu, in many cases, is
below the cost of production for producers of natural gas.
So that price, at least according to the Energy Information
Administration and others, is not sustainable. So longer-term,
we think things pick back up in 2014, 2015, but next year will
be a difficult year for the reasons I just mentioned.
Senator Bingaman. All right. Dr. Zycher, we did not ask you
to address it and you did not address it, I do not believe, in
your testimony, but I take it, from your basic perspective, you
would not favor us maintaining any of the various subsidies
that are in the tax code for production of any kind of energy--
oil and gas, coal, anything else. Am I accurate about that?
Dr. Zycher. As a crude generalization, that is correct,
yes.
Senator Bingaman. So you think we should just eliminate all
tax credits and subsidies in the energy area and allow
different types of production to compete as they will?
Dr. Zycher. Well, to the extent that the subsidies are
specific to the energy subsectors and not generally applicable
to all industries, and to the extent that there is not an
economic case to be made for any given one, yes. There may be
some specific subsidies that I am not familiar with, various
depreciation wrinkles and things like that that one might be
able to make an argument for. But, again, as a generalization,
I would eliminate all the subsidies that are specific to energy
and let these different technologies compete on an equal basis.
Senator Bingaman. All right. Mr. Ragan, let me ask you and
Mr. Purcell this, since you are both involved in businesses
that relate to wind energy. If Congress were to decide that we
are going to extend the wind energy production tax credit and
decided we wanted to do so for a set period of years and
perhaps phase it out over 5 years or over 8 years or whatever
and reduce it somewhat each year until that phase-out is
complete, is that kind of a proposal that you think would make
sense, or do you think that we should be maintaining the
production tax credit at its current level indefinitely?
Mr. Ragan, why don't you go first, and then Mr. Purcell?
Mr. Ragan. Sure, Mr. Chairman. Obviously, the most
important thing is to pass an immediate extension to stabilize
the 2013 market. As I mentioned before, I think, certainly,
from TPI's perspective, that I hope industry and Congress come
together to work on and reevaluate the PTC and a time period of
a longer-term extension and to have those discussions.
What the answer is today, I am not sure, but I think that
would be very valuable in the context of tax reform. And I
think there are many things going on in the marketplace with
new technologies that, from our perspective, material
selections are getting better.
I think, though, our technology is driving the costs of
wind down in the supply chain. So, coupled in that discussion
with where the PTC is and the time limit and how much ought to
occur, I think that is a valuable discussion to have.
Senator Bingaman. Mr. Purcell?
Mr. Purcell. Yes. I think, Mr. Chairman, the eventuality is
that it will no longer be needed, based on the technologies
that are coming forth in the wind business, and I think we are
starting to see that evidenced today.
However, my company is in the most basic part of this,
which is providing steel to the tower manufacturers, and on
every level we are looking to get cost out of the product, and
that is certainly part of our job, doing that at our company
and with our steel mill partners just to provide a product that
is stronger, maybe lighter steel, less steel, which sounds bad
for us.
But, quite frankly, we are serving our customers to take
cost out of the system so we can compete on our own. I do not
think we are there yet, and I think that that is why we are
here today telling you that an immediate short-term extension
is something that we need, and then I think the evaluation
needs to be a part of a broader energy policy discussion that
allows all forms of energy to exist.
And I think that the wind industry is rapidly bringing that
cost to where we can compete with other forms of energy,
especially fossil fuel. So I think there are still several
years ahead of us yet.
Senator Bingaman. Senator Cornyn?
Senator Cornyn. Thank you, Mr. Chairman.
I find myself agreeing with the vast majority of what every
witness said, as strange as that may sound, because there are,
I think, different elements in all of this, recognizing that,
number one, we are going to have to have major tax reform in
the country, which is going to dramatically change the tax
code--at least that is my hope--for a flatter, broader-based
tax that stimulates economic growth.
And I would also like to see the government get a little
bit out of the business of picking winners and losers in the
marketplace, what some people have called crony capitalism,
noting the connection sometimes between government largess and
political support, which I think causes diminished confidence
in the Federal Government.
But I also believe that there probably is a role for
government to play in new technologies, encouraging new
technologies and development. The problem is, to paraphrase
President Reagan, the closest thing to eternal life here on
earth is, in this case, I would say, a tax credit or a tax
subsidy. And the problem is, how does Congress, as opposed to
the marketplace, determine when an industry cannot compete or
when it can compete and it just needs a little more time?
I would like to start with Mr. Zindler here in a moment.
But, Dr. Zycher, you have a chart on page 12 of your
testimony that I think is instructive in terms of the tax
subsidies and support per megawatt hour for electricity. And I
wonder if you would just summarize that for us, because I think
some people not as familiar with the details of this may find
some of the disparities shocking.
Dr. Zycher. These are data taken directly from the Energy
Information Administration estimate of Federal production
subsidies and support per megawatt hour for the year 2010, and
the data--I think I adjusted them for inflation. I think they
reported in the EIA publication in either 2005 or 2009 dollars.
I cannot remember. So I just used a very simple inflation
adjustment.
But the basic message is that subsidies for wind power,
again, on average, per megawatt hour are one or two orders of
magnitude higher than they are for conventional generation
technologies and, for solar power, in particular thermal solar
technologies, three or four times or three or four orders of
magnitude higher.
These are average subsidies. If you look at Professor Gil
Metcalf's work on marginal subsidies, you come up with
basically the same answer.
Senator Cornyn. That is on page 13 of your testimony.
Dr. Zycher. Yes. That is correct. Yes. I had forgotten I
even had this in here.
Senator Cornyn. Let me just ask, because time is short
here, if I am reading this correctly, on page 12, it says that
electricity production subsidies of support per megawatt hour
for natural gas and petroleum liquids, it is $.63 per megawatt
hour, but for solar it is $968.
Dr. Zycher. Yes, that is correct.
Senator Cornyn. And then there are ranges, with wind at 52,
geothermal at 12, and the like. So there is a lot of variation
in terms of how the U.S. Government treats different sources of
energy in the tax code, correct?
Dr. Zycher. Yes, that is correct.
Senator Cornyn. Mr. Zindler, you understand our challenge,
and I wonder if you have any comments on the approach that you
would recommend that we should take when it comes to these tax
provisions that exist. And, as Mr. Ragan makes a point,
companies have started a business, built a business expecting
those to continue, but the reality being that, at some point,
they cannot, and that it makes no sense to ask the taxpayers to
subsidize some of these industries that are able to compete on
their own in the marketplace or else cannot compete at all and
we ought to just pull the plug and move on.
Mr. Zindler. Well, in my role, it is not my job to sort of
recommend policy, but I think my own two cents on all of this
is that there are value judgments that need to be made by
policymakers like yourself and others in terms of what the
priorities are, and then clear and defined and long-term
policies need to be set and stuck to.
And anything short of that, the kind of end-of-the-year tax
extender scramble that we have seen on several occasions, the
inconsistency, that is probably the worst thing you can do for
the industry in terms of its long-term growth.
Now, whether or not you decide that it is something that
you want to flourish is really your determination.
Senator Cornyn. Well, Mr. Purcell, I know you said Leeco
Steel has a distribution facility in Fort Worth, and we are
grateful for that and for the jobs your business creates. I
wonder if you have any comments, briefly, on the questions or
the issues that I raised in terms of how--I agree with Mr.
Zindler that it takes a value judgment, but I wonder if you
have any thoughts on what should inform that value judgment
that Congress is ultimately going to have to make on whether
there is a good case to be made to continue some of the tax
treatments, let us say, for wind and solar and others or at
what point we should decide that the marketplace should make
that determination.
Mr. Purcell. Yes, sir. I think that, obviously, I am a huge
believer in free markets, but I think there is a little bit
more behind that. You have to take into consideration the fact
that--and I am a little bit out of my bailiwick here, but,
certainly, if you go back historically, when industries like
nuclear energy were just getting started, the subsidies were
much higher than they are for today's current wind subsidies
at, I think, the $52 that was stated just a minute ago. And we
certainly can get you some facts behind that.
But I think that, if you take into consideration that, in
my opinion, it is a national energy and national security issue
to have many other forms of electricity generation other than
just what we are using today, that it would be certainly very
destructive to end the policy of these tax credits for wind and
others.
But, certainly, as I sit here today, I am a big believer
that, with a little bit more time, this will be a competitive
energy source and just, again, a huge jobs creator, and it is
something that we certainly need.
So, yes, I do believe it is something that will be
competitive, and I think we need to continue.
Senator Cornyn. Mr. Chairman, can I ask Mr. Ragan to
comment?
Senator Bingaman. Sure.
Senator Cornyn. And just one other factor that your
comments made me think of, Mr. Purcell, is that the other
problem is, when Congress creates these various tax incentives
and policies, we do not do a very good job of anticipating or
reacting to innovation--and, of course, the production of shale
gas and the cheap gas now which has made even nuclear power and
others as a source for electricity generation less competitive,
certainly.
But, Mr. Ragan, I wonder if you have any comments.
Mr. Ragan. Sure. Senator, I think I will echo Mr.
Purcell's--a few of Mr. Purcell's thoughts. Certainly, a broad
array of energy production and energy sources is probably, from
a policy standpoint, a good thing for our country.
In addition to that, I think that a big question for us,
and certainly for our business decisions in the markets we go
after, in wind's case, is, are we cutting the cost of wind? Has
the cost of wind come down? Is it becoming more competitive,
and do we have an opportunity to continue driving those costs
to become competitive in a free market situation?
I think the answer is yes, from our perspective, and at the
right time, any policy--and I suggested it before--I think that
over time, Congress and industry need to come together and
figure out what the right time is, but I think there is value
there and wind will become a good contributor to this country.
Senator Bingaman. Senator Thune?
Senator Thune. Thank you, Mr. Chairman and Senator Cornyn,
for holding this subcommittee hearing and to all of you for
being willing to share your perspectives.
I am interested in--I have supported renewable energy
incentives, and I believe there is a growing realization on
both sides of the aisle that Congress has to do a better job of
figuring out a way of phasing out those incentives as
industries grow and mature. And I would agree with what the
chairman of the full committee, Senator Baucus, stated in an
interview last week regarding the wind credit.
He said, ``The industry needs a little boost, but that
boost can't last forever. The more the industry can figure out
a way to proceed by cutting back, phasing out, the better it
would probably be.''
Senator Baucus, I think, is, by and large, correct, and I
hope that we can work together with the industry in a
bipartisan way to find a way to support renewable energy in a
way that is fiscally responsible.
So I guess my question is, to get back to what Senator
Cornyn was honing in on there for a moment--and I would open
this up to anybody who cares to answer it--it is the question
of when to recognize when you hit that threshold of whether or
not an industry is sustainable or viable without the benefit of
whatever that incentive is.
As you look across these energy industries, are there any
benchmarks that you can use that would determine that or help
determine that?
Dr. Zycher. Well, indeed, there are. If a technology is on
the threshold of becoming economic, there is no particular
reason why the private capital market will not support it in
the interim, and there is no reason for Congress to squander
taxpayer dollars in pursuit of that last increment of
competitiveness.
If a technology is never going to be competitive, then,
again, there is no particular reason for Congress to squander
taxpayer dollars in pursuit of the impossible.
So the argument that many have made that some technologies
are close to being competitive, all they need is a little
boost, is precisely wrong. If they are really close to being
competitive and in need of only a small boost, there is no
particular reason why they cannot go to the capital market for
working capital to get them over the hump. And, if they are not
close to being competitive, again, they should not get taxpayer
support.
Senator Thune. Anybody else? Any specific benchmarks,
anything?
Mr. Zindler. Well, I guess, first, I would just respond to
that, that the main thing we do in life is count dollars
invested in clean energy. We have counted about $1 trillion
invested in this sector and about a quarter of a trillion
invested last year alone.
So there are clearly those in the capital markets who are
believers that this technology is right there knocking on the
door of true cost competitiveness with its fossil generation
rivals. And, in fact, our look at levelized cost of energy
analyses suggests that, in some parts of the world, this
technology and others, solar in particular, are already there,
but that really market conditions do need to shift a little bit
in the U.S. for wind to become more competitive.
And as I mentioned, the $2.30 natural gas price that we
have now is probably not sustainable, and, when it rises, wind
will become more competitive, again, in part because the
industry has been, in fact, driving down costs through
technology improvements and also through scale.
The industry has really grown tremendously in the last
several years.
Senator Thune. If I might--this would be, I guess, for Mr.
Purcell or Mr. Ragan. But as participants in the wind energy
industry, how important--you have talked about certainty, and I
do not disagree for a minute. Certainty is really important.
We have a company called Molded Fiberglas in Aberdeen, SD
that makes wind blades and employs hundreds of people, sitting
there wondering what happens next in terms of in the incentives
in this industry and what that is going to mean for investment.
But for participants in this, would a 2- to 3-year
extension of the wind credit, even if the rate was phasing
down, make a big difference in decision-making relative to a 1-
year extension that is often done retroactively?
If you had the certainty of a 2- or 3-year extension, even
though that might be phasing down, is that better than this
sort of year-to-year thing that we do today?
Mr. Ragan. Again, I will speak from TPI's perspective,
which is a blade manufacturer, like the company in your State,
Senator.
There is a long process, I have mentioned, to go from power
purchase agreement to get orders, for the developers to place
orders with our company for blades. We do not make VCRs or TVs;
we cannot just turn our manufacturing lines back on the way
other industries can.
So, from our perspective, a longer-term PTC is very
valuable for TPI, much more so than would be the on-again off-
again and 1-year extensions.
Mr. Purcell. I guess I would echo those comments, not
knowing what that ramp-down is that you are suggesting. But,
certainly, a longer-term policy is, of course, best, and that
is what we have had over the last several years, which has
allowed my company and others that we serve to add investments
in capital spent up and down, especially in areas like yours
that you represent.
So I cannot tell you specifically, not knowing what that
ramp-down would be, but, in general, yes, a longer-term view
would certainly help.
I think it is important to note, echoing Mr. Zindler's
comments, with regard to the technology and the advancements we
have made, also having the local supply chain here, I would
suggest that, if we do lose this, a lot of that just goes away
and the investments that have been made over the last several
years with the certain policy that you are talking about cannot
be recapitalized if they are allowed to fail.
So I think that that is important to note, that part of the
cost out of this industry is because the supply chain is here
local now in the U.S. as opposed to Europe or Asia.
Senator Thune. If I might just suggest, Mr. Chairman--and I
have had this conversation with members of the wind industry in
the past, and I know everybody says we want to wait for tax
reform, this is going to get folded into tax reform, and I
understand the logic behind that and I hope, frankly, that we
get to tax reform and that we address all these things in a
broader way.
But I think anybody who can come forward with a specific
proposal that would have that sort of a wind-down in it is
going to be well-placed relative to those discussions about tax
reform. And so far, we have not seen any proposal that would do
that. I know that there are many of us who would be very
interested in working with people who would be able to advance
that kind of an idea. So I just would put that out there.
And, again, thank you all for your testimony today.
Senator Bingaman. Senator Carper?
Senator Carper. Thanks, Mr. Chairman.
Gentlemen, welcome. It is good to see you all. Thank you
for joining us today and for your testimony and for your
willingness to respond to our questions.
I have a couple of questions, one for Mr. Ragan, one for
Mr. Purcell, and I will let the other two slide for now. But
here is my question. I want to focus a little bit, if we could,
on offshore wind. And we do not do much onshore wind in
Delaware, some, but not a whole lot.
We have the potential for doing, I think, quite a bit of
offshore wind. My colleagues have heard me tell the story--we
tell the story of Goldilocks and the Three Bears, the story
about the porridge that was too hot, the porridge was too cold,
the porridge was just right.
As it turned out, in some places off the East Coast, the
wind does not blow enough, in some places it blows really too
much, some places it blows just right. There is a place about
12 miles due east of Rehoboth Beach, DE where the wind blows
just right much of the year, and there is some real strong
interest in harnessing that wind and turning it into
electricity.
Mr. Ragan and Mr. Purcell, your testimonies focused on the
importance of onshore wind production and the production tax
credit to your businesses. However, we have started building
offshore wind farms off our coast in this country. Could your
businesses and other onshore wind manufacturers also benefit
from those kinds of undertakings? And do you support the
offshore wind industry's efforts to develop in this country?
Please.
Mr. Purcell. The answer is absolutely ``yes.'' We have the
steel-making capabilities in this country to support the types
of equipment that need to go on the seabed floor and, also,
above ground--excuse me--above the water.
I think it is absolutely an important part of the wind
solution, and it is something that we do support. And I think
that there is room for that certainly along the East Coast,
where we are going to need a lot of electricity generation for
many years to come.
So the answer, simply, is ``yes.'' We are supportive of the
offshore business and, yes, we can be an integral part of that
supply chain as well.
Senator Carper. Good. Thanks.
Mr. Ragan?
Mr. Ragan. Senator, the answer is ``yes.'' In fact, TPI
opened a small development factory in Fall River, MA not too
long ago, first to build tooling and prototype blades for our
facilities around the country. But more importantly, we see the
opportunity and the potential growth in offshore, and that
factory is also set in place and could be expandable when the
offshore market takes off.
But we would be able to build blades there, employ more
people, and basically barge blades right off the river in Fall
River.
Senator Carper. Thank you. Late last year, I held, along
with some of our colleagues, a roundtable, a discussion with
major offshore wind stakeholders, including several
manufacturers. And during the discussions that we had there,
there seemed to be overwhelming agreement that for offshore
wind to be successful in this country, we needed a longer-term
extension of the investment tax credit for offshore wind, along
with an extension of the production tax credit for onshore
wind.
And, if you support the development, and it sounds like you
do, Mr. Purcell and Mr. Ragan, if you support the development
of offshore wind, do you support a longer-term extension of the
investment tax credit for offshore wind?
Mr. Ragan or Mr. Purcell?
Mr. Ragan. Yes, Senator. The answer is ``yes.''
Senator Carper. Mr. Purcell?
Mr. Purcell. Yes. The answer is ``yes.'' I think offshore
is certainly coming very quickly behind onshore. But I think
the immediate need would be the production tax credit, but we
are also in favor of the ITC, as well.
Senator Carper. As it turns out, they are not going to
build any offshore wind farms, as far as I know, without the
investment tax credit. It just is not going to happen.
Senator Snowe and I have suggested that, rather than just
saying, ``Well, we are going to extend the investment tax
credit for another year or two,'' what we do is change it up a
little bit, and the first several thousand megawatts of
capacity or production that are developed off of our shores
would be eligible for the investment tax credit.
I think we had 3,000 megawatts in our bill, but you could
go up, you could go down, make it dialable to meet whatever
revenue constraints we might have. So that is what we have
suggested as a difference.
The other question I have, and this would be for Mr.
Zindler, if you would, sir, as of today, can you just give us
some idea of how much offshore wind production we actually have
underway in this country--in existence today offshore--and how
much offshore wind there might be globally, just roughly,
please?
Mr. Zindler. Well, there are zero megawatts of----
Senator Carper. Would you say that again?
Mr. Zindler. There are no megawatts of offshore capacity
operating, to the best of my knowledge. There may be a pilot
project or two, as far as I know. I do not know the exact
figure. I think it is a few gigawatts of capacity in Europe at
this point. I can check for you and get back to you on that.
But Europe certainly has moved quickly. China has begun to
do some offshore development as well. So other countries have
certainly stepped up on this stuff.
I would make one comment, though, which is that it is hard
to jumpstart an offshore wind industry. It takes substantial
additional investment. A lot of the infrastructure that now is
in place in Western Europe does not exist here yet in terms of
the barges to put these things in and then manufacturing
facilities.
So the first one is going to be the hardest, no question
about that.
Senator Carper. Great. Thank you very much.
Could I ask just a quick follow-up, if you do not mind?
Give us some idea what other countries, particularly those
that are--what did you say, 4 gigawatts they are producing?
What are some of the incentives for the offshore wind industry
in that part of the world; any idea?
Mr. Zindler. Well, there are feed-in tariffs, first of all,
which guarantee that the price--that the power is sold at a
fixed rate. But the other----
Senator Carper. Give us an example of a feed-in tariff, if
you would.
Mr. Zindler. So, if the power price is typically $50 per
megawatt hour, if you are generating from a renewable source,
you might sell it for $100. It is sort of an artificially
inflated price that tries to take into account some of the
externalities that are associated with coal generating and the
polluting aspects of that.
Those are not in any way accurate numbers----
Senator Carper. I understand.
Mr. Zindler [continuing]. But just to give you a sense. The
other support that we have seen in Europe is, some of the
development banks have been supportive of financing these
projects, and that early is going to be a major issue for
offshore. The amount of dollars that are needed--it is roughly
2, even 2\1/2\ times the cost of onshore wind. In fact, you
have more like 2\1/2\, and even to 3.
So the price check can be very, very high, and so you
really have to raise a tremendous sum, and that is where sort
of these quasi-public banks can come into play in the European
sphere to help finance these.
Senator Carper. And is the rationale in Europe for actually
doing a fair amount of offshore wind, is it that the wind is a
more reliable source of generating capacity than maybe onshore?
Mr. Zindler. I will not characterize exactly what the
rationale is, but it is true that there are higher capacity
factors that you get from an offshore project than you do from
an onshore wind project. Typically, you can get up over 40
percent capacity factor, whereas you are usually in the 30s for
an onshore project.
Senator Carper. Good. Thanks. Thank you all very much.
Senator Bingaman. They have started a vote on the Senate
floor, so I think we will have to adjourn the hearing. Thank
you all very much for being here. I think it has been useful
testimony. I appreciate it.
[Whereupon, at 3:50 p.m., the subcommittee was adjourned.]
A P P E N D I X
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