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Privileged Tax Treatment of Industrial Wind Generation: Time to End

“It makes absolutely no sense to claim that we need an ‘all of the above’ energy policy to wean us from ‘climate damaging’ fossil fuel plants by subsidizing a source of energy that can only replace a small fraction of that fossil generation but at a snail’s pace and very high price.”

My name is Kevon Martis. I am the volunteer director of the Interstate Informed Citizen’s Coalition, Inc. We are a bipartisan non-profit based in southeast Michigan.

I speak today at the IER/AEA Wind Policy Luncheon on behalf of citizens living on the front lines of Production Tax Credit (PTC)-driven industrial wind development in Ohio, Michigan and Indiana.

I will get right to the point: Why do we preferentially subsidize wind energy?

1. Is it to free the U.S. from Middle Eastern oil? No. We generate only 1% of our electricity from oil. In fact, the U.S. exports more oil than it uses to produce electricity.

2. Is it because wind energy is cheaper than conventional generation? No. Since wind energy is intermittent, wind “farms” can replace neither baseload nor load following generation facilities. They can only reduce fuel consumption at those facilities. Thus unsubsidized wind energy that costs at least $100/MWh [1] in most markets to generate and integrate into the grid can only save $25-35/MWh of fossil fuel. [2]

3. Is it to “diversify” our energy generation? No. Wind energy is paired with primarily gas generation. Gas fired generation operates as wind’s “storage”. So increasing wind energy percentages essentially increases demand for gas generation. At high enough penetrations of wind energy, even nuclear and coal fired generation will be displaced by the gas/wind combination. This leaves us with less fuel diversity for electricity generation, not more.

4. Is it because wind is a complete solution to CO2 emissions? No. Because wind is almost exclusively paired with fossil generation, it -unlike nuclear- can never permanently end CO2 emissions. In fact, if EPA mandated the closure of all coal and gas fired generation in the US, wind would die as well.

5. Is it because wind is the cheapest way to reduce CO2 emissions? No. The National Academy of Sciences concluded this summer:

The reduction in CO2 emissions associated with the [wind] PTC/ITC is, however, small, amounting to about 0.3 percent of CO2 emissions from the energy sector in the Reference scenario. If the revenue lost as a result of the PTC/ITC is divided by the reduction in CO2 emissions, just under $250 in revenues are lost per ton of CO2 reduced. …[this] fiscal cost per ton of CO2 reduced is high relative to other, more efficient approaches.

6. Is it because wind is a fast solution to CO2 emissions? Far from it. Consider this: Michigan’s wind energy mandate has cost $2.5 billion for wind and transmission since 2008. The most generous appraisal (yet most unlikely) is that this expenditure reduced MI coal generation by 4%. [3] 

Yet had that same sum been spent on modern Combined Cycle Natural Gas Turbine plants, fully one half of Michigan’s coal fleet could have been retired. This would have slashed MI’s CO2 emissions by 25% and PM2.5 and Hg emissions by 50%.

7. Is it because wind energy is a fledgling technology that, once mature, can end our reliance upon fossil fuel technology? No. Wind has been subsidized for thirty years. And former Energy Secretary Chu proclaimed that wind is a “mature technology.”

The technological advancement of wind has primarily been in the form of ridiculously large rotor blade designs. [4] But no matter how large those rotors become, they cannot reverse the basic failing of wind as a fuel: it is intermittent and shows up primarily at times of low demand and thus low energy value. [5] Strikingly, the value of the PTC is essentially equal to the wholesale value of electricity in most markets.

And with the generous PTC in place, wind operators can actually pay the grid to take their energy and still strip mine a profit from the federal treasury.

8. So then, finally, is the PTC repeatedly extended because there is political advantage and campaign cash available to politicians who promote wind energy? With all candor, yes.

Conclusion

As a nation we need to ask ourselves what is the primary driver of our energy policy.

For those who believe climate change is an imminent catastrophe, then we need a solution that is fast, cheap and thorough. Wind fails those criteria in spades.

And if our primary concern is cheap electricity to foster economic competiveness on a global scale while raising the quality of life for all our citizens, wind loses again and by huge margins.

Unlike the vast majority of energy policy lobbyists and activists walking the halls of the Capitol, I am not here asking for a federal carve out for my personal gain. Neither am I here selling thinly disguised policy suggestions that benefit some distant corporate or industrial benefactor.

I am a simple volunteer citizen activist who is on the receiving end of state renewable energy mandates and on the paying end of federal wind subsidies.

I am also a victim of anti-coal, anti-gas and anti-nuclear NIMBYs and green energy opportunists.

And in my more than four years of investigating wind energy and observing first hand its onerous impact upon economics, the environment and the human communities that have to live inside massive wind plants, I have come to a simple conclusion by way of this analogy:

Subsidizing wind energy is like hiring one of my teenage sons to work in my construction business. They are seldom there when there is real work to be done. When they do show up they have a highly inflated opinion of their relative contribution to the task at hand. Nevertheless they demand to be paid far more than their adult coworkers for their juvenile efforts. And they then reward you by keeping you up all night with incessant and annoying noise that you are absolutely powerless to stop.

It makes absolutely no sense to claim that we need an “all of the above” energy policy to wean us from “climate damaging” fossil fuel plants by subsidizing a source of energy that can only replace a small fraction of that fossil generation but at a snail’s pace and very high price.

It is time, way past time actually, to end the PTC.

—————-

Kevon Martis is the founding director of the Interstate Informed Citizen’s Coalition of Blissfield, MI. The IICC is a bipartisan renewable energy citizen’s watchdog group that promotes energy policy that is economically sound, environmentally friendly and socially responsible.

Mr. Martis is a resource for legislators and policymakers in Michigan and Ohio. He has testified before lawmakers in both states about the high environmental cost yet low economic benefit of utility scale wind energy development.


[1] Simply add roughly $35/MWh in federal subsidies to the regional PPA prices in this report.

[2] This is an incredibly complex subject and far beyond the scope of my short comments. Absent yet-to-be-discovered cheap and efficient energy storage, wind energy can only reduce the run time of existing fossil generating plants and thus reduce some of their fuel consumption. Yet they cannot replace those plants in toto because wind energy’s output is highly variable and typically inverse to demand. Wind is essentially an expensive fuel saving accessory that must be parasitically attached to either gas or coal generation, thus binding us to rather than liberating us from them.

[3] Michigan’s $2.5 billion investment has constructed wind generation that nets on average only 250MW capacity. MI’s average coal fired capacity is roughly 6,000MW. 250/6000=4%. But wind typically displaces more flexible gas generation which emits no Hg or PM2.5 and 50% less CO2/MWh which significantly reduces wind’s environmental benefit.

[4] Despite billions in PTC subsidies, there has been little improvement in wind generation’s capacity value or capacity factors. http://www.windaction.org/posts/37155-wind-performing-badly#.UptUPMSsh8E

[5] MIT economist and electricity specialist Paul Joskow explained: “In a nutshell, electricity that can be supplied by a wind generator at a levelized cost of 6¢/KWh is not “cheap” if the output is available primarily at night when the market value of electricity is only 2.5¢/KWh. Similarly, a combustion turbine with a low expected capacity factor and a levelized cost of 25¢/KWh is not necessarily “expensive” if it can be called on reliably to supply electricity during all hours when the market price is greater than 25¢/KWh.”

2 comments

1 Dan McKay { 12.11.13 at 10:31 am }

Clearly, introducing increasing amounts of intermittent wind-source generation will distort the electric market pricing structure to the point where the cost of high valued generation will be extraordinary expensive or even unavailable.

2 john werneken { 12.12.13 at 2:16 pm }

End the rest of the tax subsidies, for everything, also. Government has no business deciding what people should want.

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