5:48pm

Thu February 16, 2012
Business

Colorado Wind Industry Bracing for Job Cuts

Colorado’s wind industry says thousands of jobs are on the line unless Congress approves an extension to a popular wind energy production tax credit that expires at year’s end.

That credit that gives companies a tax break on the energy they generate has helped wind become more cost-competitive with other energy sources.  It’s also led to a hiring boom in recent years in states like Colorado.

In Limbo

But due to the uncertainty over its extension, many companies here are already bracing for big drops in business, and in some cases, big layoffs. 

This is largely due to a trickle-down effect as a result of some of the warning signals already being sent by some large wind developers. 

“The fear is that if the tax credit expires, and you’re not at the point where you have parity with other forms of generation, the industry is going to die,” says Kevin Gildea, project director for Next Era Energy.

Next Era is one of the largest wind power developers in the US, and Gildea overseas one of the company’s largest markets, Colorado.

He says two new wind farms being built on the eastern plains to supply Xcel Energy are on track to be finished before the end of the year, just before the tax credit expires. 

But beyond that?  Everything’s in limbo. Gildea says the company has no projects currently planned for development here in 2013 and 2014.

That’s unwelcome news to the many smaller companies that support and supply all the development that began in earnest when the production tax credit was last extended in 2009.

Trickle Down

Companies like SGB in Golden, which manufactures transformers that sit atop wind turbines, which boost the voltage so the power can be easily transmitted to faraway markets.

The company relocated to Colorado from Germany two years ago as part of a wave of firms that followed Vestas Wind Systems and other large wind manufacturing companies’ entrance into the region.

“As their orders go down, so do ours,” says president and general manager Kerwin Stretch.

Hired away from a much larger firm, he was the only employee when the company opened.

Now there are 15; most of them on the assembly line.  Stretch had planned to hire two more on, until the impasse in Washington over the credit extension.

Lately, he says he’s had a lot of sleepless nights. 

“It’s always hard to lay anyone off,” Stretch says. “But when you’re talking about laying off a thousand out of three thousand, that’s not so bad, when you’re talking about 8 or 9 out of 15, that’s very painful.”

Competing with Natural Gas

The wind industry is used to uncertainty.  And executives like Kerwin Stretch are used to riding out booms and busts, due to the on and off again nature of the production tax credit since it first came about in 1992.

But because this most recent boom was so big, and the industry and its manufacturers saw such tremendous growth, the coming months could be less a bust, and more a cliff, according to analyst Amy Grace.

“Basically never before has so much manufacturing been at risk,” says Grace, who heads the North American Wind Analysis division at Bloomberg New Energy Finance

Grace says wind manufacturing jobs are at such risk now with the credit possibly going away because of the price of another commodity, natural gas. 

It’s been falling precipitously.

“It’s very, very difficult for any energy source, even coal and new coal builds, to compete with natural gas,” Grace says.      

Ending Energy Subsidies?

Some in Congress want to do away with all energy subsidies though. 

“It could be used for energy research, it could be used to reduce the debt,” said Sen. Lamar Alexander (R-Tenn).

Lamar said the credit has amounted to more than $12 billion in subsidies over the years that could be better spent in other areas of the budget.

He made the call earlier this week on the Senate floor, while speaking against renewing the tax credit as part of the payroll tax cut negotiations.  

Alexander and a few other Republicans – mainly from the South – aren’t hiding their distaste of federal efforts to boost wind power more generally either.    

“The Great American West, which conservationists for a century have sought to protect, has become littered with these giant towers,” Lamar said.  

But all but one member of Colorado’s delegation has come out in support of extending the wind production tax credit. 

Democratic Sen. Michael Bennet said Thursday he’s now working to get it included in a broader transportation bill.

“Let’s be clear, we have oil, and we have coal, and we have natural gas, we have abundant wind and abundant sun and entrepreneur horsepower all across the Front Range,” Bennet said. “What we don’t have is Washington’s cooperation.”

Bennet also said that the wind tax credit extension only needs to be temporary.

Business Outlook Gloomy

Back at SGB in Golden, general manager Kerwin Stretch says his industry needs that credit for about five more years.  That’s what he and others say it will take before wind can be fully-cost competitive with traditional fossil fuels.

It’s almost there, just not quite yet, they say.

Stretch says he’s frustrated with the polarized political environment in Washington, where, even something that has considerable bi-partisan support, appears to be stuck.  

“We’re at a critical stage where we started a very small operation, saw two years of very good, very aggressive growth, and now hit a spot where all of the work that we’ve done for those two years could be potentially undone,” he says. 

Even if the credit gets extended soon, Stretch expects his business to taper off next year. 

For now, things are okay, if not busier than normal, as companies rush orders to get their projects done by the end of the year.