Daniel Simmons is the director of state affairs at the Institute for Energy Research.
The wind production tax credit will expire at the end of the year, unless Congress renews it. Wind lobbyists are working overtime to continue these subsidies. But taxpayer advocates and energy analysis agree that the tax credit is bad for America's electricity ratepayers, bad for taxpayers, and bad for the stability of the electricity grid.
The Wind Production Tax Credit Was Supposed to Be Temporary
The tax credit was created in 1992 as a temporary measure to spur growth in the wind industry. It was created to replace an investment tax credit which had been enacted in the Energy Tax Act of 1978. Over the last 20 years, the tax credit has been extended six times, but is set to expire at the end of 2012.
For decades, wind power proponents argued that wind would be cost-competitive with other forms of electricity generation if only it received the taxpayer's help for a few more years. In 1986, a representative of the American Wind Energy Association claimed that wind would be the "lowest cost source of energy in the 1990s, beating out even large-scale hydro." That didn't happen.
In 2002, Sen. Chuck Grassley of Iowa claimed that wind needed the production tax credit for just a few years. He said, "I'd say we're going to have to do it for at least another five years, maybe for 10 years. Sometime we're going to reach that point where it's competitive." Wind still isn't competitive and even though taxpayers have subsidized wind of the past 10 years as Grassely said might be necessary, he is still supporting the tax credit with no real end in sight.
The Wind Production Tax Credit Is Expensive for Taxpayers and Will Continue to Be So
Over the past 20 years, wind producers have received $20 billion in subsidies. Even though the wind production tax credit expires at the end of the year, wind producers will receive $10 billion in tax breaks because of projects that already qualify for the credit. The Congressional Budget Office estimates that the cost of extending the tax credit will be $12 billion over 10 years.
The American Wind Energy Association argues that if the wind production tax credit is not extended 37,000 jobs will be lost. Because the cost of the tax credit will be $12 billion, this means that each job "saved" by the association's calculation will cost the taxpayer $300,000. If wind is truly competitive with other sources of electricity generation, why do these jobs cost the taxpayer so much?
The Wind Production Tax Credit Is Such a Large Subsidy That Wind Generators Give Away Their Power To Continue to Collect the Subsidy
The wind production tax credit provides such a large subsidy that wind producers frequently pay the electricity grid to take the electricity they are producing. In fact, since 2008 in the western part of Texas, fully 10 percent of the time wind operators paid the electrical grid to take their electricity. Any subsidy is obviously too large when it creates the incentive for companies to pay people to take their product.
The reason that wind generators pay for people to take their product is because the tax credit is large compared to the wholesale price of electricity. The wind production tax credit is $22 per megawatt hour. In many areas of the country, the wholesale price of electricity is around $44 per megawatt hour, so a subsidy of 50 percent of the price of electricity is substantial. Not only that, but because of the tax credit, the wind producers make money giving the wind away or even paying people up to about $20 per megawatt hour to take their electricity when electricity demand is low.
Wind production is very low on hot summer afternoons when electricity demand is high, but wind production is frequently high in the early morning when demand is low. But for purposes of receiving the tax credit, a megawatt of electricity produced at 4 p.m. when it is 100 degrees is worth the same as when it is 60 degrees in the morning. This means that the tax credit does not give wind producers the incentive to produce electricity when demand is highest.
The wind production tax credit was supposed to give wind a quick leg up, but after more than 20 years, wind is still asking for handouts from taxpayers. Wind is expensive because wind cannot be relied upon to produced electricity when people want it, unlike coal, natural gas, nuclear, and hydro. It's about time that we end the tax credit and this multibillion giveaway to wind developers.