WASHINGTON, Nov. 30, 2015 /PRNewswire-USNewswire/ -- Despite receiving broad bipartisan support in the past, the Wind Production Tax Credit (PTC) has come under increased scrutiny for distorting electricity markets and undermining the competitiveness of baseload power generation, including nuclear reactors. Originally intended to be an energy market equalizer, the PTC has helped drive wind deployment and reduce the cost of wind electricity generation so low that the Department of Energy (DOE) now asserts that wind is now cost competitive with fossil energy – even without subsidies. These findings and more are highlighted in a new ACCF Center for Policy Research study: Clean Power Plan Subsidies for Wind Reinforces Arguments Against Renewing the PTC.
For over two decades, Congress has sought to increase private sector investment in wind capacity in order to drive market penetration and cost reductions to a point where wind is competitive. Congress has not specified the amount of national wind capacity that is needed to achieve this goal, but it has determined that the private sector requires a payment of 2.3 cents per kilowatt hour (kWh) for ten years as an incentive to invest in wind capacity. Notably, this number was chosen when the average cost of producing wind electricity was much higher than conventional generation (e.g., coal). It also concluded that about $2.7 billion in annual federal support is required.
However, a recent study by the U.S. Department of Energy (DOE) concludes that the national average price for wind (in terms of the average power purchase agreement) has dropped to 2.35 cents per kWh. This drop represents a substantial improvement since 2009 when the price was nearly 7 cents per kWh.
"Based on DOE's study, the objective for the PTC has been achieved and the average price of wind electricity is now roughly the same as the value of the wind PTC in kilowatt hours," said ACCF Executive Vice President George David Banks. "Should Congress attempt to extend the PTC again, proponents would essentially be making the ridiculous argument that the price of wind power should be at or near zero in order to be competitive."
The ACCF report notes that policies supported by the EPA don't reflect this new reality. The EPA's Clean Power Plan (CPP) – which forces states to cut an average of 32 percent of their carbon emissions before 2030 — provides substantial subsidies to wind and locks in wind carve-outs under state renewable portfolio standards.
Under EPA's model rule for the CPP, the wind industry stands to receive tremendous benefits, where the annual subsidy value for wind and solar is estimated to be roughly $2.95 billion during the first three- year compliance period of 2022-2024. Also included in the CPP is the proposed Clean Energy Incentive Program (CEIP) whereby 300 million allowances are handed out in a one time give-away for "early action" of which new renewables are one of only two options. Combining the subsidies granted by those two programs could result in annual payments to renewables of roughly $4.5 billion in the above time frame. Because wind's existing capacity is roughly nine times that of solar, the wind industry is expected to be the largest recipient of CPP renewable subsidies by far.
"Qualifying wind projects would essentially double, or in many cases, triple dip, receiving far greater handouts than what the Congress considered to be necessary for wind to be competitive," Banks said. "Given the DOE's conclusion that wind no longer needs subsidies, Congress should recognize that its goals have been achieved. A renewal of the PTC would not only waste taxpayer money, but it would continue to damage energy markets by harming investment in existing as well as new base load generation that is needed for grid reliability."
Founded in 1973, The American Council for Capital Formation (www.accf.org) is a nonprofit, nonpartisan economic policy organization dedicated to the advocacy of pro-growth tax, energy, environmental, trade and economic policies that encourage saving and investment.
Media Contact: Mike Burita, [email protected]
SOURCE American Council for Capital Formation