Federal subsidies for wind energy are set to expire at the end of the year. Again.
Since 1992, the Production Tax Credit (PTC) has offered generous federal subsidies to wind generators. Under the policy, wind generators are eligible for 2.3 cents in taxpayer subsidies for each kilowatt hour (kWh) of wind electricity generated. That’s nearly a third of the total retail price of electricity for industrial customers.
Federal subsidies for wind are so lavish, that generators in places like west Texas (where wind is plentiful) have been known to bid electricity onto the grid at negative prices, just so it can collect the larger subsidy amount and pocket the difference. Negative pricing is a great deal for whoever owns the generator, but can play havoc with electrical eliability, by undercutting other power sources and discouraging investment in new capacity.
Yet despite literally paying people to take their electricity, wind power represents just 3.5 percent of all electricity generation in the United States. The big problem is not so much cost as reliability. Wind power is intermittent; it has a nasty habit of stopping, sometimes on a moment’s notice. And since there is no commercially viable means of storing electricity, use of wind power requires the existence of back-up power plants (typically natural gas) that can be ramped up or down depending on which way the wind blows. This sort of redundancy is not only inefficient, but emissions levels are higher during the process of ramping a gas plant up and down, cancelling at least part of the environmental benefits of using wind. No amount of subsidies for generators will solve these problems, and, in fact, subsidies could serve to aggravate it by undercutting the profitability of back-up sources of power.
Even in Europe, where wind subsidies can be even more lavish (and where electricity prices are far higher) than in the United States, intermittency poses an insurmountable problem. A study by the Danish think tank CEPOS, for example, found that while wind generators managed to generate the equivalent of 19 percent of Denmark’s total electrical demand, wind accounted for less than 10 percent of electrical consumption.
The PTC was initially billed as a temporary measure designed to encourage the development of wind electricity until it was ready to compete with other energy sources. The temporary nature of the PTC, however, has in practice tended to be a bit of a mirage. Each time the PTC is set to expire, wind lobbyists turn up to argue that the industry just needs a little more time to mature, and the credit ends up getting a stay of execution. The latest such reprieve came at the end of last year,
when a one year extension of the PTC for wind was slipped into the fiscal cliff deal. This time should be different. If wind isn’t competitive after more than two decades of federal support, there’s no reason to think that a few more years will change that, particularly when many states offer additional subsidies and mandates for renewable energy. Instead of trying to protect wind from competition, the federal government should step aside and let the industry find its own niche in the market.