This month, two subcommittees of the House of Representatives Science, Space, and Technology Committee  held a joint hearing, “Impact of Tax Policies on the Commercial Application of Renewable Energy Technology.”
I was one of nine witnesses testifying. In addition to myself, the let-the-market-decide witnesses were Dr. Benjamin Zycher, Visiting Scholar, American Enterprise Institute, Tax and Other Subsidies for Renewable Energy Should Be Abandoned; and Margo Thorning, Senior Vice President and Chief Economist, American Council for Capital Formation (testimony here).
The subcommittee Republicans were prepared, well informed, and interested in drawing out the facts. The Democrats, on the defensive, complained that the hearing was happening, argued the subcommittees lacked the jurisdiction to hold the hearing, and claimed that renewables were being short-changed compared to oil and gas.
A summary of my testimony (full version here) follows:
Background and Purpose
Energy policy in the United States calls for the aggressive deployment of renewable generation which has led to an explosion of expensive renewable resources that are variable, operating largely off-peak, off-season and are located in rural areas with limited transmission.
By year-end 2011, nearly 47,000 megawatts (MW) of on-shore wind was installed in the United States, representing less than 3% of total electricity generation in the country. Based on the interconnection queues of each grid region in the U.S., industrial wind is the dominant renewable resource with more than 90% of the proposed generating capacity of all renewable energy projects in the United States.
My testimony looks at recent trends in the U.S wind industry including the impacts and costs of advancing significant wind resources.
The Wind Mandate: 20% by 2030
In 2008, the Department of Energy (DOE) published 20% Wind Power by 2030 which evaluated the feasibility of using wind to produce twenty-percent of the nation’s electricity. A 20% scenario means transforming the mid-section of the country as well as our coastal waters into massive wind generating facilities connected together by thousands of miles of new 765 kilovolt transmission lines.
The American Wind Energy Association insists the industry is on track to meet the DOE’s goal but getting to a 20% scenario is neither realistic nor wise. The report’s authors failed to accurately characterize the purpose and scale of such development, the technology challenges and staggering financial costs, and the fundamental changes to electricity infrastructure necessary to achieve the hoped-for 2030 levels.
According to the DOE, “wind power cannot replace our capacity resources” — those generators we rely on day-to-day and hour-by-hour to meet our energy needs. DOE maintains that if wind has some capacity value, that should be viewed as “a bonus, but not a necessity.”
For the authors of the study, satisfying the 20% wind goal is entirely independent of our need for reliable power.
So why build wind at all? Wind is being installed to generate low-emissions energy. Any opportunity beyond that is, as DOE correctly states, “a bonus, but not a necessity.”
This fact is validated by the ISO-New England’s wind integration study which concluded that New England could achieve 20% wind but doing so would require the existing fleet of power plants in the region to remain online AND that any new capacity resources proposed to be built also be brought online.
Building wind in the United States is not about meeting our energy needs. While wind may displace fossil fuel, it does not and cannot replace it.
Federal Subsidies Programs: PTC and Section 1603
The wind industry has complained for over ten years that each time the production tax credit was allowed to expire new wind installations stalled. And here we are again.
But attributing wind market activity to the PTC is overly simplistic and fails to consider other, more significant factors that impact growth, like energy prices and the availability of state mandates. In fact, these factors are likely the primary impetus for wind growth (and decline), in the United States.
The PTC is an overly generous, highly inefficient policy. At 2.2 cents per kilowatt hour, this open-ended subsidy has a pre-tax value of about 3.7 cents per kilowatt hour, more that the wholesale price of electricity in most areas of the country.
Section 1603 is another story altogether. There is a perception that the 30% case grants are monetarily equivalent to the PTC. This is not true.
Aside from the obvious intrinsic value of cash in hand versus tax credits earned over a period of ten years, I was prompted to look further into the numbers themselves to test the claim of equivalence.
I looked at five operating onshore wind energy facilities and five projects that were approved, but not yet built including two offshore applications. In all cases, the cash grants exceeded the anticipate PTC by a significant amount.
Unlike the PTC, Section 1603 is not performance-based. If a project’s capacity factor is marginal, the public still grants the case. With upfront cash grants, developers have little incentive to negotiate lower prices with suppliers. In fact, the more expensive a project is to construction, the better for everyone involved.
Wind Energy Jobs Claims
Wind energy is not a jobs producer and the proof is in the numbers. In 2008, the wind industry claimed 85,000 direct and indirect jobs. By 2010, after ARRA and after Section 1603, the industry reported 10,000 fewer jobs. But that’s just part of the story.
In 2010, the State of Vermont published the results of its own study to evaluate the consequences of adding just 50 megawatts of renewable energy at prices that were higher than market-based alternatives.
The analysis found the Feed in Tariff program would increase Vermont capital investment and create jobs during its 26-year life cycle, however, the net gain in employment was found to be far less than conventionally thought. Following an initial increase in temporary construction-related jobs, long term employment would average thirteen full time jobs per year, including both direct and indirect employment. But other sectors would suffer long term net job losses.
But job transfer was not the only finding reported from the study. The model also showed that above-market energy costs due to higher electricity prices would have the deleterious effects of “reshuffling consumer spending and increasing the cost of production for Vermont businesses” and that “increased costs for households and employers would reduce the positive employment impacts of renewable energy capital investment and the annual repair and maintenance activities”.
Hidden Subsidies for Wind
Independent of the PTC and Section 1603, millions of public dollars have been spent supporting wind power development in the U.S. One example is the work undertaken by DOE, FAA and the DOD Clearinghouse to mitigate for the impacts of large-scale wind turbines on military and navigational radar. By 2008, nearly 40% of our long-range radar systems were already compromised by wind turbines. We’ve doubled our wind capacity since then but the problem of radar interference persists.
My testimony cites two locations where unacceptable compromises were made or planned. One is Travis Air Force Base in California; the other is the Navy Air Station at Kingsville, Texas where fifty percent of our Navy aviators are trained.
Today, the United States spends millions of dollars a year to improve and maintain the most sophisticated radar systems in the world while additional millions are allocated for the cross-purpose of degrading our radar abilities in order to avoid turbine interference. It is crucial that Congress investigate this issue and more fully ascertain the costs in dollars and reduced radar resolution occurring due to wind development. Such hidden subsidies are easily kept from public view while placing our national security and military readiness at risk.
The true impact of a national renewable vision based on wind is in the public cost, both in dollars and in the impacts wrought by transforming our open spaces, on- and offshore into massive industrial power plants with associated transmission and other infrastructure. Wind proponents advocate for a national energy policy that mandates renewable energy, but public policy requires credible analysis with an objective eye on what’s realistic and appropriate.