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Kansas gets wind farm, BP gets tax credit -- just in time

October 6, 2011 |  6:55 am

Wind turbines 
Kansas is to wind as Saudi Arabia is to oil. So it makes sense that energy conglomerate BP recently announced plans to build an $800-million, 262-turbine wind farm in the southern part of the state.

The project seems like a big deal -- especially considering the several hundred jobs the wind farm will bring -- but it might be one of the last big stories we'll hear about wind energy for a while. The move comes just in time to take advantage of a stimulus-funded federal tax credit that's set to expire next year.

That expiration may shut down, or seriously curtail, new construction in the wind industry. Further, the expiration comes amid a backlash over the Solyndra unpleasantness (more on that later).

The 66,000-acre wind farm, coined Flat Ridge 2, is expected to generate more than 500 temporary construction jobs and roughly 30 permanent positions as BP subsidiary BP Wind Energy moves to start construction before January and finish the project by 2013. The wind farm will be the largest in Kansas and the largest owned by BP. 

Suffice to say, the work comes during a tough time for the renewable energy industry.

Stimulus-backed solar firm Solyndra, once a darling of the Obama administration, has crashed and burned in spectacular fashion, collapsing into bankruptcy and spurring a criminal investigation that has congressional Republicans questioning whether taxpayers should be on the hook for funding renewable energy development.

BP’s job-creating project — as it has been touted by state officials — will take advantage of an expiring provision that had previously been extended by President Obama’s politically unpopular 2009 stimulus.

The provision offers either a 10-year, 2.2-cent production tax credit for every kilowatt-hour generated, or a onetime 30% investment tax credit paid to companies starting wind projects before 2012 and finishing before 2013 — two deadlines that the BP project exactly meets.

“There’s a sort of cliff that we fall off at the end of 2012,” BP Wind Energy chief executive John Graham told the Wichita Eagle. “With the expiration of the [production tax credit], there is likely no wind development in 2013.”

BP will also pay more than $1 million a year for 20 years to the 200 landowners where the turbines will be built, according to a report from The Wichita Eagle, plus another annual $1 million to local governments.

And the company has signed a long-term deal to sell three-quarters of its energy to Associated Electric Cooperative in southwest Missouri, which has 875,000 customers. Its owner cited the imminent expiration of the production tax credit as part of the reason for buying energy from BP now.

“It really buys down the price of the wind power,” said Republican Kansas Gov. Sam Brownback of the production tax credit in an interview with the Wichita Eagle. “Associated is very wise in buying wind energy now because of the pressure on the federal budget, and the [production tax credit] is under pressure. It’s key for the state of Kansas if we want to continue to develop wind energy.”

The wind industry has been heavily reliant on federal tax credits as it expands. Occasional lapses in the production tax credit program by Congress have led to huge dips in new construction, according to data from the American Wind Energy Assn.

The investment tax credit for new wind projects has been popular too: It has awarded more than $8.4 billion in renewable-energy tax credits since 2009, with roughly $6.7 billion going toward wind projects alone, according to U.S. Treasury award data.

The American Wind Energy Assn. has said that continuing uncertainty about whether the credit will continue beyond 2012 has already led to layoffs in what has been a boom industry: The nonpartisan Congressional Research Service estimated in a Sept. 23 report that nearly 400 U.S. manufacturers produced turbine products in 2010, up from 30 in 2004.

“The expansion of U.S. wind power generation will depend, at least in part, on government policy decisions,” the Congressional Research Service said. “If state and federal governments continue to support wind generation, manufacturing of wind generating equipment in the United States is likely to increase.”

Observers may not be actually saying, "The answer, my friend, is blowing in the wind..." But they're probably thinking it.

RELATED:

Oil heads for worst quarter since 2008

Solyndra's collapse is a tale of too much dazzle

Energy Department OKs new loan guarantees for green projects

-- Matt Pearce in Kansas City, Mo.

twitter.com/mattdpearce

Photo: The wind turbines are coming -- to Kansas at least. Beyond that, the future of alternative energy is uncertain now that a tax credit to encourage such projects is expiring. The turbines shown here are in Japan. The Kansas project, funded by BP, will get 262 of its own. Credit: Tomohiro Ohsumi / Bloomberg

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