Production Tax Credit: Remove Big Wind’s Training Wheels, Report Argues

by Marlo Lewis on November 1, 2012

in Features

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“Remove Big Wind’s training wheels” and let the production tax credit (PTC) expire, argues University of Lousiana State University Professor David Dismukes in a report published by the American Energy Alliance (AEA), a grassroots free-market research and advocacy group.

Wind energy lobbyists and their congressional allies are pushing for a one-year extension of the PTC, first enacted in 1992. The Joint Committee on Taxation estimates the one-year extension would increase the cumulative federal deficit by $12.2 billion over the next 10 years. Wind industry lobbyists warn that not renewing the PTC would kill jobs. One could reply that jobs dependent on market-rigging tax breaks impose a net loss on the economy and should not be created in the first place.

The AEA report, however, does not take this tack. Rather, the report argues that wind doesn’t need the PTC because it is already competitive and will become more so as efficiencies improve. For example, the report cites a Breakthrough Institute estimate that unsubsidized wind costs $60 to $90/MWh, which “compares favorably with new combined cycle natural gas generation, at around $52 to $72/MWh,” making wind generation “likely already competitive with natural gas in areas that have high wind speeds.”

I’m not persuaded because, as explained in other posts, a megawatt of unpredictable, unreliable wind capacity has less value than a megawatt of predictable, reliable natural gas or coal capacity. Nonetheless, the AEA report presents several criticisms of the PTC that strike me as spot on, three of which are discussed below.

First, the claim that wind is still an “infant industry” in need of special tax coddling doesn’t pass the laugh test. Wind has grown from just eight megawatts (MW) of installed nameplate capacity in 1980 to 50,000 MW as of Aug. 2012, and in 2011, wind power represented 45% of all new generation under consideration by regional interconnection organizations, independent system operators, and utilities. This industry has outgrown any plausible need for training wheels.

Second, because 30 states and the District of Columbia have renewable portfolio standards (RPS) programs that establish Soviet-style production quota for renewable electricity (see map below), the long-term growth of wind energy is guaranteed regardless of whether Congress extends the 20-year-old PTC or lets it expire:

Data confirms that these state renewable mandates not only drove the explosion of wind generation capacity development [a nearly five-fold increase from 2006 to 2011], but also established a guaranteed increasing future market for wind energy anticipated to triple in size by 2030 even if the federal PTC expires. The U.S. Energy Information Administration (“EIA”) forecasts that even if the PTC and other incentives are eliminated, renewable generation will still be on track to rise from 500 billion kilowatthours (“kWhs”) in 2011 to approximately 750 billion kWhs by 2035 (or a 50 percent increase in wind generation). This is a guaranteed increase in market share, even without the federal wind PTC, that is not offered to any other type of traditional power generation technology such as natural gas, coal, or nuclear.

Wind accounts for 90% of all renewable energy developed under state RPS programs. At a recent Platts Financing U.S. Power conference, a Standard & Poor analyst estimated that even without the PTC, state RPS programs would generate about $150 billion in contracts over the next 10 years. If future RPS targets are met with wind, installed capacity will more than double from today’s 50 MW to 127 MW by 2035 (see chart below). Offering an additional $12.2 billion in tax breaks on top of the guaranteed markets created by RPS programs would allow this pampered industry to “double dip” at the corporate welfare trough.

Third, the PTC is inequitable, a hidden wealth transfer from taxpayers who live in states with little or no wind energy development to ratepayers in states with the most stringent renewable energy mandates:

Notably, over 50 percent of currently-active wind capacity is located in only five states; over 75 percent is located in just 11 states. Under the federal wind PTC, however, taxpayers in the states without RPS mandates pay approximately 24 percent of the PTC funding, even though they receive no direct economic benefit. As such, the current federal PTC structure unfairly shifts the cost of wind energy development from taxpayers in the RPS states to those with little or no wind development, forcing taxpayers across the country to support an industry concentrated in a few states.


Matt November 5, 2012 at 6:52 am

We still need a head start to break away from Oil and Gas dependency. Right our plant in Windsor alone has lost 30%+ of our workforce. Wind is proving to be highly effecient, but without the tax credit top wind producers such as Vestas may be forced to shutdown even more facilities and workers. Oil and Gas have been producing for decade upon decade. Wind power is still developing in the U.S. and still needs an extra incentive to keep this ball rolling.

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