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Category — Negative pricing (wind)

Linowes: Negative Pricing Distortions of Windpower

“The combination of the federal PTC and state RPS policies has shielded wind developers from the basic supply and demand forces present in a healthy competitive market. As a result, we are fast-tracking the construction of expensive renewable resources that are variable, operating largely off-peak, off-season and located long distances from where the energy is needed.”

As IER’s recent study found, the wind Production Tax Credit (PTC) disproportionately benefits States with renewable energy mandates by distributing the high cost of their policies to taxpayers at large. And the benefit is enormous — at $23/MWh, the PTC’s pre-tax value of $35/MWh equals or exceeds the wholesale price of electricity in many parts of the country.

No traditional source of electric generation receives a federal subsidy as generous and condition-free as the PTC.

Since most of the wind deployed in the US is located in, or adjacent to states with RPS mandates, project owners are also eligible to earn significant out-of-market revenues in the form of renewable energy credits. [Read more →]

December 12, 2013   6 Comments

Wind Pricing: Not Cheap but Subsidized

“Ignoring how competitive markets operate–and pretending that wind energy is exempt from the basic rules of economics–will not change the fact that windpower is an expensive, unpredictable resource that cannot compete without enormous public hand-outs. If the PTC were permitted to expired today, the wind industry might be forced to increase its efficiencies and lower project costs, but the effect on electricity prices at large would likely go unnoticed.”

Last fall, utility-giant, Exelon Corp., encouraged Congress to let the federal production tax credit (PTC) expire, citing the subsidy’s distortionary effect on competitive wholesale energy markets. The American Wind Energy Association (AWEA) slapped back by publicly booting Exelon off its board and unleashing an army of surrogates to control the damage and berate the company for putting its interests first.

The latest attack came July 4th when eco-youth Gabe Elsner, a “public interest advocate” of The Checks and Balances Project, accused Exelon of conspiring with Big Oil to squeeze out cheaper competitors like wind in order to drive up consumer electricity prices and increase profits.

The absurd claim exposes Elsner’s feeble grasp of how wholesale power markets operate. We examined several characteristics of wind generation in the context of existing market rules in order to demonstrate the flaws in his complaint.

Since Exelon participates in the PJM wholesale market, we focused our attention there. [1] The below table provides quick facts about PJM’s 2012 control area.

PJM Table

(CLICK for better resolution); Source – State of the Market Report for PJM 2012

Subsidized “Cheapness”

Under PJM rules, wind generators are permitted to offer their energy at zero ($0.00) or negative prices. But don’t be fooled into believing wind energy is a low-cost resource. Quite the opposite! [Read more →]

July 23, 2013   5 Comments

Texas Windpower: Will Negative Pricing Blow Out the Lights? (PTC vs. reliable new capacity)

“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.


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 →]

November 27, 2012   4 Comments