How the Wind Production Tax Credit undermines wind power
U.S. renewable-energy policy is largely defined by mandates and subsidies that maintain an artificial market for investment and generation. Heavy dependence on government creates significant vulnerability for the sector and risks an eventual collapse of the industry, as we have seen in parts of Europe.
Given the collapse of investment in wind when the credit expired last year, it’s obvious that, at this point, a real and significant market for wind power simply does not exist. As Warren Buffet, who has significant electricity generation holdings, explained so well: “on wind energy, we get a tax credit…That’s the only reason to build them. They don’t make sense without the tax credit.”
If the private sector won’t build wind turbines without the credit, it’s time for America to rethink its approach to wind power and renewable energy in general. To start, Congress should abandon the idea of reviving the federal Wind Production Tax Credit, because it actually undermines efforts to make wind competitive.
That statement may seem odd to many. We have heard renewable advocates and their political allies argue countless times that America should simply continue mandates and subsidies, including the PTC, until renewables become truly competitive. But this does nothing to address the fundamental reason why investors like Mr. Buffet don’t actually want to invest their own money in wind power. Renewable-energy systems today cannot provide reliable electricity to homes 24 hours a day, or even to factories for eight hours a day.
Grid operators simply cannot count on the wind blowing or the sun shining when electricity demand is high. Because of their intermittency, renewables require other generation – coal, natural gas or nuclear – to back them up. If a utility has to maintain backup generation that can produce power when the wind isn’t blowing, why would that utility need wind turbines that only work part time at all? Perhaps the better question is, why should taxpayers pay for both when only the backup is needed? Would the average consumer buy a car or a washing machine that only worked part of the time?
That is not to argue that wind does not have a future in America’s electricity mix. There are strong public policy reasons why government should work to put wind power on track to become a generation source that the private sector chooses, without the mandates and subsidies. This transition depends largely on a breakthrough in energy storage technology that could provide baseload attributes to renewables, including wind (i.e., producing electricity 24/7). Such a program would cost billions of dollars in research and development, a cost that is too great for government alone. Private-sector investment is also needed, including the billions of dollars at Mr. Buffet’s disposal.
Current policies like the wind PTC actually deter private-sector investment, thereby undermining the goals that these good-intentioned policies seek to achieve. The PTC rewards wind farm operators a $23 credit per MWh for producing electricity regardless of market demand. This incentive is especially problematic, because the wind blows mostly at night when people are asleep and factories are idle – when demand for power is at its lowest.
Without the PTC, the majority of wind farm operators would turn off their turbines at night to avoid paying congestion charges to the grid. Losing that revenue would create an incentive for operators to invest in storage technology that could store the electricity and allow it to be sold during the day. As long as the congestion charge is less than any tax credit benefit, wind farms will continue to dump their power on the grid, pay the charge and pocket the government-created profit.
The success of the wind PTC in promoting investment has enabled the build-out of more than 60 GW capacity of wind power, plus another 12 GW in the pipeline. With more than 70 GWs of wind capacity, the United States should now have a critical mass of private-sector investment that can be leveraged to support research and development in storage technology. But if the wind PTC is renewed, we can count on wind farm operators to act rationally: why should they invest in a technology that would enable their power to be sold when the market wants it, when they already receive a tax credit that allows them to sell at a loss and still make money?
Advocates for wind should be pushing for an increase in government research and development funds to accelerate the development and commercialization of energy storage technology – a breakthrough that would reduce the vulnerability of renewables to shifts in government policy. They should also seek rational policies that maximize the flow of private sector dollars into storage. However, wind promoters, in particular, don’t want to acknowledge publicly that they need storage technology, because doing so would be an admission that wind technology is not competitive or reliable on its own.
That’s unfortunate. The United States would benefit substantially from competitive wind power and energy storage. Giving more money to the Warren Buffets of the world to build wind turbines that only work part of the time does little to advance U.S. energy security or air-quality goals. It only creates countless future graveyards of towering, rusting wind turbines scattered across the United States that will eventually cost billions of dollars to dismantle and throw in a waste dump.
