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Sun-Tzu: “Keep your friends close, but keep your enemies even closer”

February 19, 2012

Those who follow the wind industry have undoubtedly heard that the US House of Representatives failed last week to extend the Production Tax Credit for development of new wind farms — the PTC is scheduled to expire at the end of this year.  The PTC is a government incentive that provides a tax deduction for up to one third of the cost of new wind projects.  The PTC is technically not a subsidy — no money actually changes hands from the government to the wind farm developer.  The PTC is a tax deduction.  Over time, it allows wind farm developers to keep more of the money they earn from their wind power plants.  Even with the PTC, a new wind farm would still pay taxes, albeit at a more favorable rate.

 

 

However, many Americans mistakenly believe that the PTC is a subsidy, and they feel that in this era of government over-spending we can not afford to keep handing money over to green energy projects.  There has been a strong lobby effort — entirely by fiscal conservatives — to remove these incentives based on a dire need to control government spending.  They somehow fail to realize that if new wind farms are not developed, then new tax revenues will not be generated.

The wind industry in the US, brought together by the American Wind Energy Association (AWEA), has spent recent months lobbying heavily to have Congress pass an extension to the PTC.  AWEA has argued that extending the PTC will provide much-needed stability to the industry, will save jobs in the US and will allow the wind energy industry to continue its impressive growth.  Indeed, the PTC has been allowed to expire three times in the past two decades, and in each of those periods there were virtually no new wind energy projects developed in the US.  There is every reason to believe that last week’s decision will have a similar impact on the industry in 2012 and 2013.

The wind industry came together and put the US government on notice during the closing months of last year.  Vestas and other leading turbine manufacturers stated very clearly that if the PTC failed to pass, they would have no choice but to close down their factories in the US and lay off wind energy workers.  Based on Congress’ decision last week, I fully expect to see closure announcements coming soon.

My fellow executives in the wind industry should have read “The Art of War.”  Most of the leading wind turbine manufacturers have built their US factories and pooled their resources in states that were already supporters of wind energy.  Of course, it has always been a common practice to reward the states that support your industry by creating jobs there.  But, in setting up factories in states such as Colorado, Oregon, and Illinois — states that already have a strong pro-renewables political base — the industry missed the opportunity to convert important senators and congressmen in conservative states to the side of sustainable energy.

When I set up the new R&D center for Vestas in Houston, Texas — at the time, the largest wind energy R&D center in the US — one of my principal objectives was to help build a pro-wind constituency in a very influential conservative state.  If we had established our R&D center alongside our factories in Colorado or in another progressive state, we would have converted no one in the House of Representatives and would have gained no additional political support.  I have to say, if more of my colleagues from other OEMs had considered creating jobs in conservative states, then the wind industry would have found itself right now with a much more diversified political power base and, I believe, much more support for important decisions such as the extension of the PTC.

I hope the industry learns from this.  As Sun-Tzu so eloquently stated in his famous handbook, the power of political diversification must never be underestimated.  I encourage the key players in the industry to consider the impact these decisions have when deciding where to build their factories and their supply chain.  It is often tempting to reward those you consider to be your friends, but sometimes it’s more wise to take your opposition to the dance.

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One Comment leave one →
  1. David Jones permalink
    May 3, 2012 8:18 am

    Subsidy or “hand-out” seems to be the running narrative in the media, unfortunately.

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