There comes a point in every person’s life when they have to face the realities of the adult world. In 21st century America the age at which that point comes seems to be extending further past the age of legal adulthood each year, leaving a generation in a state of perpetual adolescence—with their parents footing the bill.
Something similar has taken place concurrently in American energy policy. Birthed in 1992, the Production Tax Credit (PTC) for wind that was intended only to get a young industry up on its feet has now been extended a dozen times.
The production tax credit provides wind energy facilities with a tax break for the first 10 years of operation. In 2013, the production tax credit for wind generation was 2.3 cents per kilowatt-hour for the first 10 years of production, with adjustments for inflation. Under the phase-out of the credit approved by Congress, the tax credit decreased by 20 percent per year from 2017 through 2019. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended the production tax credit for facilities beginning construction during 2020 at a rate of 60 percent—higher than the 40 percent rate for 2019. Currently, wind energy facilities that begin construction after the end of 2020 cannot claim the credit, although they will still be required to be built by state mandates referred to as “renewable portfolio standards.”
No Expansion, No Extension
- The U.S. Treasury estimates that the Production Tax Credit will cost taxpayers $40.12 billion from 2018 to 2027, making it the most expensive energy subsidy under current tax law.
- The tax credit fundamentally distorts markets and strains the grid in ways that are economically unsustainable.
- Backup costs (i.e., the costs of maintaining backup electricity 24/7 to compensate for wind’s intermittency) are not included in estimations of the cost of wind power, leading to gross underestimation of the costs of the energy wind produces.
- Countries like Germany and Great Britain have bet big on wind power and have foisted higher residential electricity prices on their citizens as a result.
- If wind power makes sense, the free market will support it without the need for subsidies like the PTC and state renewable energy mandates.
The Wind Industry Can No Longer Have It Both Ways
The PTC gives wind power producers a path to profitability, even when a fair market would not. It effectively pays wind power producers for energy regardless of that energy’s value to the grid and to energy users. Now nearly 30 years since it was introduced, the PTC continues to coddle an industry that has promised time and again that’s it’s almost ready to move out of the house. Much like America’s perpetual adolescents who pound their chests to assert manhood while awaiting mom-and-dad’s direct deposit, the wind industry assures us it is out-competing other forms of electricity while still lobbying for another round of handouts.
As described by Kenny Stein for the Institute for Energy Research:
We’ve been hearing a lot lately about the economics of wind energy. In a recent earnings call, James Robo, CEO of NextEra Energy, predicted that within a decade the cost of wind generation would be more competitive “without incentives” than conventional sources like coal and natural gas. NextEra is one of the largest generators of wind and solar electricity.
Tom Kiernan, CEO of the American Wind Energy Association (AWEA), the $18 million lobbying arm of the wind industry, stated in 2016 that “wind is now the cheapest source of new electric generating capacity” in many parts of the United States. Kiernan is also fond of saying that the wind industry is getting out of the federal subsidy business altogether because of a provision in the PATH Act of 2015 that gradually phases down the industry’s main federal subsidy, known as the Production Tax Credit (PTC). In an interview defending the PTC from being modified in the recent tax reform law, Kiernan implied that the industry will no longer be receiving the federal subsidy because “we made a deal to drop our tax credit to zero over five years.” Tom is right, the subsidy phases down, but a closer look at the mechanics of the PTC shows that the wind industry will still be receiving billions in federal subsidies well beyond 2020.
It’s time to close the book on the PTC and nudge the wind industry out into the real world.