If this past year is any indication, wind energy may become little more than a dream remembered. That is, unless the government continues to step in to support the industry. According to the American Wind Energy Association (AWEA), only seventy mw of wind power was added to the nation’s power supply; the slowest increase since recordkeeping began in 2005. The cause of the decrease in the rate of expansion is attributed to uncertainty building up at the end of last year over whether there would be an extension of the Federal Wind Production Tax Credit (PTC) in 2013.
Tom Kiernan, the CEO of AWEA, describes last year’s uncertainty as engendering a boom-bust cycle, delaying the planning of new projects for 2013. What Kiernan says, however, is misleading. It is not the uncertainty over the wind PTC that created this problem. The problem comes from the wind energy boom generated by the cash grant program of the American Recovery and Reinvestment Act, or section 1603.
As Lisa Linowes explains on MasterResource.org:
We’ve long known that Section 1603, the cash grant program enacted under The American Recovery and Reinvestment Act of 2009 (ARRA), fueled a wind bubble that was certain to burst, and it did.
Under 1603, roughly 30,000 megawatts of new wind was installed, more than doubling the wind capacity in the country. As much as 90% of the 13,000+ MW of wind installed last year alone can be attributed to Section 1603, not the PTC.
In order to receive the grant, projects needed to be in-service by the end of 2012. Developers raced to meet the deadline which flushed the industry’s project pipeline.
This is a clear example of the knowledge problem; government inefficiently allocating resources (in this case, wind subsidies) when the market would provide a better solution. If people really wanted wind energy instead of fossil fuel alternatives, then they would pay the price and the government would not have to prop up the industry. It’s akin to the government building a convention center in a city that already has private stadiums and concert halls.
When the artificial government demand through subsidies is created, it spurs a boom in building. Once this is withdrawn, the demand is no longer present and companies adjust to this new reality. The same process was behind the financial crisis of 2008.
Instead of calling for fewer price distortions, environmental lobbyists and the administration push for more subsidies. As long as they do so, the boom-bust cycle will continue. They have become like modern day Rhett Butlers, implying to the public that they “frankly don’t give a damn.”