“The PTC offsets the high price of wind energy, giving the false impression that wind is competitive with other resources. But with capacity factors under 30%, project operation costs likely exceed the average wholesale price of energy in most areas of the U.S. Wind only appears to be a ‘cheaper competitor’ because it’s subsidized to a point where economics have no meaning in the wholesale market.”
We learned this week that the Senate Finance Committee plans to mark-up a new tax extender bill. This news comes just seven months after Congress enacted the controversial $42 billion tax credit (HR 5771) giveaway. Apparently, the promise of long-term broad base tax reform has again been pushed aside in favor of short-term relief for select taxpayers.
Over the coming months, a tidal wave of lobbyists will descend on Capitol Hill with countless reasons for why their industry deserves special consideration. The loudest among them will be promoters of wind energy. This open letter to Senator Orrin Hatch (R-Utah), chair of the Finance Committee, reminds him of another side of big wind that its promoters never mention.
Dear Senator Hatch:
We read Senator Grassley’s July 7 letter to you calling for the reinstatement and extension of the wind production tax credit. He touts the jobs created by the industry and the importance of “long-term predictable tax laws.” We would like to take this opportunity to present another side of the wind PTC, one that shows the high costs and negative impacts of subsidizing an industry for 23 years!
Under HR 5771 passed in December 2014, the wind industry secured a 1-year, $6.4 billion extension of the production tax credit (“PTC”), representing the second-largest payout under the bill. This was preceded by a $12 billion dollar extension passed in January 2013 and nearly $13 billion in direct cash outlays issued under the Section 1603 grant program for wind projects placed in service by the end of 2012.
Contrary to claims about fossil fuel being heavily subsidized for decades, no traditional source of electric generation has ever received an open-ended, unlimited subsidy like the PTC for every kilowatt hour of energy put on the grid.
The PTC offsets the high price of wind energy, giving the false impression that wind is competitive with other resources. But with capacity factors under 30%, project operation, costs likely exceed the average wholesale price of energy in most areas of the U.S. Wind only appears to be a ‘cheaper competitor’ because it’s subsidized to a point where economics have no meaning in the wholesale market.
Substantial non-energy market revenues, including the PTC and renewable energy credits (RECs), keep wind in the black.
Since the PTC pays renewable generators the same price for placing a kilowatt-hour of energy on the grid regardless of time of day or seasonal demand requirements, the subsidy encourages renewable generation to be built in the wrong places and that operates when we need it the least.
Without the PTC, the industry would have to lower its capital costs, improve its efficiencies and narrow the price gap with gas. But as long as it is propped up by our tax dollars, there’s no need.
Warren Buffet recently reminded us that wind investment makes no sense without handouts from taxpayers. Bill Gates went further when he said recently that current renewables like wind are “dead-end technologies” and the cost of using wind and solar to reduce our carbon emissions is “beyond astronomical.”
The cost in actual dollars is evident. What is less recognized are the significant and serious environmental and societal costs of building wind turbines.
Today, hundreds of thousands of acres throughout the United States have been transformed into sprawling electric generating facilities strung together with expansive transmission systems. Thousands of 400+ foot tall spinning towers consume our open spaces and threaten people and wildlife in their way.
Before you race to extend the wind PTC, Senator Hatch, we ask that you stop and consider the true impacts of your decision. The wind industry has had 23 years to grow and improve its product. Big wind is now a mainstream energy resource. We are at a point where the industry may be doing more harm to our markets and our communities than good. It is time to say no to the wind PTC once and for all.
 As of January, 2015, $23.7 billion in cash grants were distributed. More than half of this grant money went to wind energy projects.
Lisa Linowes, through her scholarly research and advocacy work, is one of the nation’s leading critics of government-enabled industrial wind power.
Thank you Lisa Linowes for your continued efforts to try and STOP this assault on American taxpayers and ratepayers for the antiquated technology of industrial wind!
Frankly, I am not sure how any of our elected representatives can still pretend that industrial wind is anything other than the WASTEFUL, NON-SOLUTION that the past three decades have proven it to be?!?
Wind proponents are destroying the very environment they claim they wish to save with these giant, bird-slaughtering “Cuisinarts of the sky,” and their associated industrial sprawl, while not doing a thing to significantly reduce the emissions that they claim they are worried about. It is absolutely pathetic.
Any politician who continues to support this legalized thievery via the Wind PTC (Pork-To-Cronies) should be ousted from office ASAP!
Industrial Wind: A Net Loser, Economically, Environmentally, Technically, Civilly:
Wind projects are primarily public works projects for the wealthy. Wind projects and their true benefit for Americans amount to nothing more than a scam. The wind industry is basically convincing taxpayers to pay for their “turbines to nowhere” and then they are given a percentage (PTC’s) off the embellished energy totals they claim with voluntary reporting.
Biomass energy, burning wood for energy is highly polluting and is labeled as renewable energy so it also qualifies for PTC’s. Power plants burning wood and other
forms of biomass emit about 3,000 pounds of CO2 per megawatt-hour — an
emissions rate that is approximately fifty percent higher than that of a coal-fired power plant.
From the outside all this looks a lot like the Gaham Wilson cartoon I saw decades ago with a dumbass looking character signing a contract stating “guaranteed or no money back.” Of course the dumbass in this case is the taxpayer and the guy holding the contract would be the wind industry.
Thanks Lisa. I would definitely “sign on” to your open letter were a sign-on letter. However, if I understand it correctly I think your post makes an understatement: “…with capacity factors under 30%, project operation costs likely exceed the average wholesale price of energy in most areas of the U.S.”
“Operation costs” tend to be interpreted as a partial cost. I think you meant total cost of wind per MWh, often stated as “levelized cost.” According to EIA, more than 78% of wind’s levelized cost is capital cost. In terms of the PTC’s contribution to recovering those costs, the PTC alone is worth $960,000 per nameplate MW in pretax present value (at a 35% capacity factor, a 35% corporate tax rate and a 2.5% annual average rate of inflation over ten years). That is half or more of capital cost, so 39% or more of EIA’s projected levelized cost. The special federal loan guarantee and five year double declining balance depreciation schemes are worth roughly the same as the PTC, according to a 2010 White House staff memo discussing a particular wind project in the Pacific Northwest that was eligible for the 1603 grant (designed to be worth approximately the same as the ITC and PTC).
Additionally, note the comments of FERC’s auditor of PJM in recent testimony in Ohio:
“The primary purpose of the Minimum Offer Price Rule (MOPR) in the PJM capacity
market tariff is to prevent market participants from submitting uneconomic offers based
on the receipt of out of market payments which result in artificially depressing RPM
auction prices. Procuring capacity when it is not needed for reliability, requiring it to
clear in the auction through an offer price below its costs and providing subsidies in the
form of additional out of market revenue is not consistent with the PJM market design.
The result would be to artificially depress prices in the PJM capacity market. This would
negatively affect the incentives to build new generation and would likely result in a
situation where only subsidized units would ever be built.”
The net effect of the PTC can be considered as a pre-tax, present value sum that reduces capital cost of wind. Furthermore, PJM, MISO, FERC and EIA all calculate wind’s capacity credit in overly generous ways, making the capacity market corrupting effect of the PTC even worse.
Tom, thanks for your comment. Regarding operation costs, perhaps the more clear statement would be “As long as wind facilities operate at or under 30% capacity factors, there are too few hours of generation per year to spread the large upfront capital costs over. Energy sales alone are not sufficient to recoup capital costs or earn a profit.”
I certainly concur with that, based on the individual wind and solar projects I have reviewed in Ohio and other places. I have never found one that could pay for its own up front capital costs by generating and selling electricity at real market rates. Not even close.
Thanks for continued clarity on this issue, and for recent post on the trends in capacity factors this past winter. I would ask the Finance Committee to be taking a hard look at the revenues that it is losing, and that there are many cases where tax credits for wind ARE tax credits for fossil fuel generators. I do not want to risk libel, so I will just make some case studies and ask for more.
It is the hidden costs of new or upgraded transmission, and costs of RPS mandates coming out of the ratepayers pockets (in my state worth much more to wind generators in northern New England than the PTC is). It is also that what started as incentives to build renewable generation to meet INCREASING demand (pre-recession) has now turned into REPLACING large amounts of conventional generation and not just the ‘dirtiest five’ coal generators but politically-incorrect low-carbon nuclear generators as well. Where would Ontario be if it did not have over 10 GW of nuclear generation? I am not defending particular nuclear plant that I happen to live inescapably downwind of. However, the northeast ratepayers are already entering ‘energy poverty’ at high rates or as some politicians say, businesses and homeowners are screaming about energy costs.
It is critical to keep up the differentiation of retail and wholesale electricity costs, because people hear that MA and CT utilities signed these contracts for Maine and New Hampshire Wind Generators at 8 cents or less per kWh and think WOW, I am paying twice that for supply. They don’t know what it is going to cost them on the distribution side and they don’t know the difference between wholesale and retail; nor is it widely appreciated that cost comparisons given are comparing cost of new generation rather than cost of existing generation by fuel type.
The article and comments do a good job of talking about levelized cost and payback, largely for capital equipment manufacture out-of-nation at least in significant raw materials and refining of them. But it does not really emphasize the short lifetime of that equipment that costs so much, and how it shrunk from expectations.
And one could call wind energy a ‘mature technology’, but I reject that notion. It sold many nations, states/provinces/ and localities on the good looks of a teenager (say the V42 and V47s as early ‘grid scale’ to 2005ish) and based impacts on health, bird kill etc on those turbines) and to a lesser extent on much smaller turbines off it a bucolic distance. The teenager went off somewhere, i.e. Offshore wind for Europe and to some extent UK) and came back so tall and large he can’t fit through the door. Maybe he was on steroids or other things, but he rages, has become anti-social and does not care who he offends, and simply DOES not fit. Like the parents of many generations, governments are reluctant to see the change and will sacrifice almost everything, certainly their fiscal health, for this child in whom they have vested so much. Yes, good money after bad but it is not shown on the budget bottom line.
The forgoing should not be interpretted to mean that I do not think that cute toddler should not have ‘matured’, and it does not excuse any installation in the US from knowing and acknowledging the risks when turbines are sited in ecologically-sensitive or human occupied areas. Europe already gave enough science over and over again. And they proclaimed the reasons US anglophiles use models that underestimate the risk.
In my mind, the singularly most hideous aspect of any PTC for wind generation is that it encourages siting with disregard to the financial considerations that would exist without subsidy/incentives. I look at NEngl where optimistic projection of ‘economic’ wind resource was very limited (even at 80 m, replacing 50 m previous standard) and with NY which has a lot of northern tier forest that apparently no one cares about. I personally just want the projects to go through full and fair analysis. That is because another ‘sub
Lisa, editorial and letter to Sen. Hatch are spot on. The subsidies don’t stop at Federal level, many of the proposed projects in NYS also look for a PILOT (Payment in lieu of taxes), which is nothing more than an additional tax subsidy, plus avoidance of mortgage recording taxes. This is icing on the cake for these projects and often overlooked when analyzing the true cost of wind energy.
In NYS we have misguided Governor Cuomo who believes a half-trillion offshore LI wind farm is best for the public, as he takes rate payer money from the Green Bank to dole out. His REV plan has been delayed several times and his “transparent” administration doesn’t disclose to the taxpayers what he plans to do with our billions he have skimmed from us.
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