A new economic analysis concludes that the Wind Production Tax Credit should be allowed to expire at the end of this year because it “destabilizes” the electricity market and will lead to a less reliable electrical grid in the future.
“Our findings lead us to conclude that the PTC should be allowed to expire under current law,” says the report by the NorthBridge Group.
“As a matter of both economics and public policy, no government production tax subsidy should ever be so large that it creates an incentive for a business to actually pay customers to take its product,” the report continues.
Wind producers receive a $22 per megawatt hour federal subsidy which in some “wind-rich” regions of the country allows them to essentially pay electrical grid operators at times there are power surpluses. This creates what’s known as a “negative price,” meaning producers are selling at a loss to earn taxpayer dollars.
“This taxpayer-funded subsidy artificially depresses wholesale power prices, and in hours of the year when demand for electricity is low it can result in negative pricing,” the report notes.
While at first glance, negative prices may seem to save money for electricity users, these prices actually require enormous taxpayer subsidies, distort electricity prices, and harm conventional electricity generation and electrical grid reliability.
Wind often doesn’t produce enough power during times of the day when electrical demand is highest, but overproduces at times of the day when demand is lowest, researchers maintain.
The subsidy encourages wind producers to keep producing at high levels when power demand is low because they can still make money due to the federal subsidy they earn when they generate.
“The failure of wind generators to curtail output when wholesale prices approach zero has both short term and long term negative consequences,” the study notes. “In the short term, the failure of wind producers to curtail output makes it more difficult for system operators to maintain reliability, and also makes it more costly for them to operate the regional electric grid.”
In the long run, this means less investment will go into conventional power generation, imperiling the reliability of the electrical system.
“In recent years, about 85% of total wind capacity has not operated during the peak hours on the highest demand days of the year, on average,” the report adds. “Controllable conventional generation is thus needed to backstop wind and ensure the lights stay on.”
The federal Wind Production Tax Credit was enacted in 1992 get the wind industry off the ground. Congress has renewed the credit seven times and let it expire three times since it was enacted, and now lawmakers on both sides of the aisle are debating the merits of another extension.
While the tax credit extension seems less likely in the Republican-controlled House, Democrat Senate Majority Leader Harry Reid of Nevada said he was “very confident” that the tax credit extension would pass his chamber as several key Republicans sponsored legislation extending the tax credit, including Chuck Grassley of Iowa, Scott Brown of Massachusetts, and Dean Heller of Nevada.
President Obama also favors extending the wind tax credit.
“You can expect to see this will be a top priority for the administration,” a senior White House official, speaking on condition of anonymity, told reporters.
Republican presidential candidate Mitt Romney has come out against an extension.
“He will allow the wind credit to expire, end the stimulus boondoggles, and create a level playing field on which all sources of energy can compete on their merits,” said Shawn McCoy, a spokesman for Romney’s Iowa campaign.
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