Category — Negative pricing (wind)

“It is well known that Texas is undergoing a major challenge in maintaining resource adequacy due to improper price signals; less well known is that a significant portion of the problem can be laid directly on the doorstep of subsidies for wind generation.”

The federal Production Tax Credit (PTC), which currently provides a $0.022/kWh subsidy to qualifying renewables, is set to expire at year-end. Just the prospect of expiration has dramatically slowed new construction of industrial wind capacity, despite a raft of other subsidies to politically correct energy. [1]

The Texas Public Policy Foundation has released a new paper looking at the effect of the production tax credit both on taxpayers and consumers. Bill Peacock and I found that PTC continuance puts the Texas electricity market at increased risk of price spikes and blackout by discouraging the construction of new reliable, on-peak generating capacity.

Texans are not only paying for the PTC’s direct annual cost of $622 million; they could pay billions of dollars more from forgone capacity given negative pricing where wind producers generate unneeded electricity just to pocket tax credits.

Background

It is well known that Texas is undergoing a major challenge in maintaining resource adequacy due to improper price signals; less well known is that a significant portion of the problem can be laid directly on the doorstep of subsidies for wind generation.

When wind is bid into the market at a negative price, superior forms of generation must match that price or risk getting knocked off the grid. This decreases the profitability of non-wind generation and makes companies less likely to invest in new capacity. This has already degraded Texas’s resource adequacy, and it could get worse before it gets better. This increases the risk of blackouts if unusual events reduce capacity and/or increase demand. [Read more →]