The Production Tax Credit: Just the Facts

“The infant industry argument is a smoke screen. The so-called infants never grow up.”

- Milton and Rose Friedman, Free to Choose (Harcourt Brace Jovanovich, 1979), p. 5.

The 20-year-old production tax credit (PTC) has not done its work yet, claims the American Wind Energy Association (AWEA). It should be extended …. and extended … and extended.

The credit, now worth about 2.2 cents per kWh, or 40 percent or more of the wholesale average price of power, was first enacted in the Energy Policy Act of 1992, and has been extended six times, sometimes retroactively to cover the entire period without lapse.

What are the key facts regarding this subsidy to qualifying renewable energies, primarily electricity generated from wind and solar? This summary by the Institute for Energy Research (of which I am CEO) provides much good information for the ongoing debate given that the PTC is set to expire at the end of this year.

The PTC Is Costly

· In the past 20 years, taxpayers have paid $20 billion in tax subsidies to support the wind industry. [1]

· Even if Congress allows the PTC to expire this year, the government is still locked in to nearly $10 billion in tax credits for previous, qualifying projects. [2]

· Extending the PTC just one year would cost taxpayers an additional $12.1 billion. [3]

The PTC Creates An Unlevel Playing Field

· The PTC is 2.2 cents per kilowatt hour and wholesale electricity prices are frequently 4–5 cents per kilowatt hour.

· Wind production does not follow demand—it follows the wind. When wind production is high, demand is frequently low.

· The PTC is so large, that wind producers frequently pay people to take their power just to continue to collect the PTC. [4]

· Since 2008, in the western part of Texas, fully 10 percent of the time wind operators paid the electrical grid to take their electricity. [5]

· Natural gas, coal, and nuclear do not receive the PTC, they frequently have to pay the electrical grid to take their power when electricity demand is low and wind production is high. This reduces the value of these reliable, dependable, cost-effective power plants.

Wind Power is Expensive and Unreliable

· If the cost of wind could be directly compared to natural gas, electricity from new wind installations is nearly 50 percent more expensive than advanced combined cycle natural gas. [6]

· But wind is not comparable to natural gas, or coal, or nuclear, or hydropower because wind is not dependable. [7] To truly compare wind to dependable, reliable source of electricity, you need to include the cost of backup for wind.

· Electricity production needs to follow electricity demand, but when electricity demand is highest (such as during the middle of afternoon in the summer) wind frequently does not produce much electricity at all.[8]

Wind jobs are Expensive–and Blowing Away

· Even with the PTC and wind generation additions, the wind industry lost 10,000 jobs between 2009 and 2010 – a 12% drop – and employment stagnated between 2010 and 2011. The wind PTC is not creating more jobs, but it is costing taxpayers more money each year.[9]

· In 2010, wind companies received 42% of all government energy production subsidies, but provided only 2.3% of the electricity generated. [10]

· Since 1995, shortly after the PTC was first established, wind power has grown from 0.09% to 2.9% in 2011 of total U.S. electricity production; EIA projects it will only grow to 11% by 2035. [11]

The PTC Was Supposed to be Temporary

· 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.” [12]

· In 2002, Sen. Chick Grassley of Iowa claimed that wind needed the PTC 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.”[13]

For another critical look at a tax provision whose time should have never come but lingers and lingers, see “the most comprehensive information about the PTC, anywhere.”

Bottom line? Wind is still not competitive in either price or reliability.  And taxpayers are poorer.

[1] Marita Noon, All Those Billions, Blowing in the Wind,Feb. 6, 2012, http://www.energytribune.com/articles.cfm/9744/All-Those-Billions-Blowing-in-the-Wind.

[2] Bob Murphy, Assessing the Production Tax Credit, Institute for Energy Research, Apr. 24, 2012, http://www.instituteforenergyresearch.org/2012/04/24/assessing-the-production-tax-credit/.

[3]Congressional Joint Committee on Taxation, August 3, 2012

[4] Frank Huntowski et. al., Negative Electricity Prices and the Production Tax Credit, Sept. 14, 2012, http://www.eenews.net/assets/2012/09/14/document_gw_01.pdf

[5] Id.

[6] Institute for Energy Research, Levelized Cost of New Electricity Generating Technologies, July 6, 2012, http://www.instituteforenergyresearch.org/2009/05/12/levelized-cost-of-new-generating-technologies/

[7] Institute for Energy Research, Making Sense of Levelized Costs, Dec. 22, 2011, http://www.instituteforenergyresearch.org/2011/12/22/making-sense-of-levelized-costs/.

[8] Daniel Simmons, California’s Flex Alert: A Case Study in Intermittent Energy, Aug. 13, 2012, http://www.instituteforenergyresearch.org/2012/08/13/wind-and-solar-have-little-value-when-trying-to-keep-the-lights-on-the-example-of-california-and-its-current-flexalert/.

[9]AWEA, U.S. Wind Industry Annual Market Report Year Ending 2011, http://www.awea.org/learnabout/industry_stats/index.cfm.

[10] Institute for Energy Research, Renewable Energy Subsidies 6.4 times greater than Fossil Fuel Subsidies, May 31, 2012, http://www.instituteforenergyresearch.org/2012/05/31/12704/.

[11]Energy Information Administration, Monthly Energy Review 2012, http://www.eia.gov/totalenergy/data/monthly/.

[12] Institute for Energy Research, Will renewables become cost competitive anytime soon?, Apr. 1, 2009, http://www.instituteforenergyresearch.org/2009/04/01/will-renewables-become-cost-competitive-anytime-soon-the-siren-song-of-wind-and-solar-energy/.

[13] Christopher Prandoni, Life without the PTC ain’t that bad, Aug. 1, 2012, http://atr.org/life-ptc-aint-bad-a7095.