Last week, the American Wind Energy Alliance (AWEA) released an outline of a plan to extend the wind production tax credit (PTC) for an additional six years. Because the PTC provides credits for 10 years, AWEA is asking for a 16 year subsidy period. Some have called this AWEA’s plan a phase-out because it reduces the amount of the credit each year, but the reality is this plan is an extension of the PTC. The plan is short on details and analysis, but more importantly it fails to justify extending the PTC for a single year, yet alone six years.
AWEA’s first priority is to expand the PTC
AWEA claims they want to be “a leader in addressing the country’s fiscal issues,” but the first thing they propose in their PTC extension is to make the PTC more generous. As AWEA explains, “Our top policy priority in the lame duck session is an immediate extension of the PTC, allowing projects that commence construction by the end of 2013 to qualify for the credit.” (emphasis added). This is a change from the current law which requires projects not only to “commence” before the end of the year, but to be “placed in service.” Congress’s Joint Tax Committee predicts a one year extension of the PTC would cost $12 billion. AWEA’s proposal will worsen America’s fiscal situation, not improve it.
The PTC is not designed to produce valuable electricity or a more reliable electricity grid, but merely to generate tax credits for corporations
AWEA claims that the PTC “rewards results” because the PTC rewards the production of electricity. That sounds good, but only to a naïve reader who does not understand that one of the key features of the electricity grid is to keep the electricity grid stable 24/7. What matters is not the production of electricity at any time during the day, but the production of electricity when people need it. Electricity demand is variable and people use much more electricity on hot summer afternoons than during the night or early morning. As a result, wholesale electricity prices can be 10 times higher (or more) during peak periods of electricity use than during the night.
But the wind PTC rewards wind generators the same for producing electricity in the middle of the night, when electricity use is low, and during the middle of heat waves when electricity production is high and badly needed. And oddly enough, wind energy is produced predominantly at night, and is most likely to not produce energy during the peak demand times when it is hot. Wind generation does not help keep the electricity grid stable on hot summer afternoons because the wind does not frequently blow during those times.
The PTC is designed to generate tax credits for large corporations to pay down their tax obligations any time the wind is blowing, regardless of how much electricity the grid needs. It is important to remember that these are credits, not deductions, and therefore reduce tax obligations on a dollar-for-dollar basis. The highest priority of AWEA is generating these credits, not making the electricity grid more stable.
The PTC extension will continue to be expensive—over $20 billion at least
Despite coming to Congress with hat in hand asking for billions of dollars out handouts, AWEA did not estimate the cost of extending the PTC. Amy Grace, a wind analyst with Bloomberg New Energy Finance told E&E News that she estimated the cost of AWEA’s proposal at $21.5 billion. Grace’s estimate seems low given that the Joint Committee on Taxation estimated that extending the PTC for just 2013 would cost over $12 billion.
If the wind industry were to commerce installation of as much wind capacity as the Joint Committee on Taxation estimates they would install in 2013 and continue at that same level for the next six years, then the PTC would cost over $50 billion. (Note that AWEA proposes to reduce the value of the PTC by 10 percent in 2014, 20 percent in 2015, 30 percent in 2016, and 40 percent in 2017 and 2018).
The data show that state electricity mandates have led to the expansion of wind, not the PTC
AWEA claims that the PTC “has proven to be the most effective policy to attract private capital and deploy wind technology in the U.S.” But according to a recent study by Professor David Dismukes, this assertion is wrong. Dr. Dismukes explains that the expansion of wind is much more strongly correlated with recently-enacted state renewable electricity mandates, not the 20-year-old PTC. In fact, according to Standard & Poor’s there are as much as $150 billion in new renewable investment opportunities in the next ten years, even if the PTC is not renewed.
Wind energy is not valuable energy because we cannot rely on wind
AWEA claims that the PTC has driven “more efficient” and “cheaper” energy. The reality is that wind energy is not efficient or even valuable. Wind-generated electricity cannot be relied upon—it only works when the wind is blowing and as everyone knows, wind can be fickle. It is equivalent to paying extra for a 4-wheel drive vehicle which fails to work when the snow falls.
One way to understand why wind energy is not very valuable is to consider the example of maritime shipping. For thousands of years, humans powered their ships with wind power. The wind was obviously free, but with the invention of the steam engine and later the internal combustion engine, these powered vessels became more reliable and eventually faster than sailing ships. Today, cargo ships could be powered by wind and be “efficient” and “cheaper” as AWEA claims wind-generated electricity is, but very few cargo sailing ships exist in the world today. Instead, people value the reliability, speed, and price combination of ships powered by engines.
As the example of cargo ships show, the reliability, speed, and price combination of petroleum-fuel ships is far more valuable than saving some money by only using sail-power. The same is true for electricity generated by wind. It’s nice to get electricity and not pay for the fuel—the wind is free after all. But we want reliable electricity, not electricity only when the wind is blowing.
AWEA claims that wind is cost effective today and they claim to still need the PTC for the next sixteen years
AWEA is trying to have it both ways. They argue that wind is currently cost competitive but in the same breath claim they need a lavish subsidy in the form of the PTC to be cost-competitive. In their promotional material, they claim that “Wind energy is now one of the most cost-effective sources of new electricity generation, competing with new installations of other energy sources in wind-rich regions.” But they claim that continuing the PTC is necessary to “keep the industry minimally viable.” Wind can’t both be cost competitive today and still in need of large tax credits to survive. It has to be one or the other.
The current PTC program is wasteful, expensive and destabilizing to the very grid we depend upon for our quality of life and in some cases, our lives. It pays companies 2.2 cents per kilowatt hour for electricity generated whenever the wind blows, regardless of the need for the electricity. This 2.2 cent credit is huge in comparison to the wholesale price of electricity which frequently ranges from 2.5 cents to 4.5 cents per kilowatt hour. This is the equivalent of taxpayers paying oil companies an additional $49 to $88 per barrel on top of the $100 per barrel they are getting for their product. At a time when economic growth is stagnant and budget deficits threaten the future of the American economy, it is appropriate to ask whether such subsidies are wise or warranted or both. A casual glance at the numbers provides an objective with a logical conclusion.
 Because the PTC is applied after taxes, it is worth more than 3 cents per kilowatt hour in pre-tax income.
 Joint Committee on Taxation, JCX-70-12, Aug. 2, 2012, http://www.finance.senate.gov/imo/media/doc/JCX.pdf.
 David E. Dismukes, Removing Big Wind’s “Training Wheels”: The Case for Ending the Federal Production Tax Credit, Nov. 1, 2012, http://www.americanenergyalliance.org/wp-content/uploads/2012/10/Dismukes-Removing-Big-Winds-Training-Wheels.pdf.
 Id. at 1.
 AWEA, Utilities and Wind Power, http://www.awea.org/learnabout/utility/index.cfm.
 As noted above, because the PTC is applied after taxes and is therefore worth more than 3 cents a kilowatt hour in pre-tax dollars, these numbers could be higher.