A Free-Market Energy Blog

Windpower: Response to Comment (on 4 cent/kWh wind and interfuel subsidies)

By Mary Hutzler -- April 26, 2009

[Ed. note: Occasionally a comment is important enough to deserve its own post, rather than a reply in the comment section. This is in response to Comment #1 of “A Texas Sized Energy Problem” here.]

The Energy Information Administration, an independent agency within the Department of Energy, in its 2008 report, Federal Financial Interventions and Subsidies in Energy Markets 2007, compares subsidies related to electricity production, the sector where wind is used. In table ES5, they show that the traditional fuel sources (coal, natural gas, and petroleum liquids) received $1,081 million in Federal subsidies for electricity production in 2007, while wind received $724 million, a ratio of 1.49. However, in that year, the traditional fossil sources generated 2,865 billion kilowatt hours (kWh), while wind generated 31 billion kWh. On a per unit basis, the traditional sources, received a subsidy of $0.00038 per kWh, while wind received a subsidy of $0.0234 per kWh.

Also, the Texas Comptroller’s 2008 Energy Report you cite indicates that in fiscal year 2006, the year in which they calculated subsidies, that Federal subsidies for wind represented 11.6% of total U.S. consumer spending, while the subsidies for nonrenewable fuels- oil, coal, natural gas, and nuclear- represented only 0.9% of total U.S. spending.

Regarding federal subsidies, the Texas Comptroller’s report that you reference notes:

“The rapid growth in wind power that Texas has experienced since 2005 would likely slow if the federal production tax credit (PTC), which is scheduled to expire on December 31, 2008, is not extended. (The PTC is a federal subsidy that currently provides a 10-year corporate income tax credit of 2.0 cents per kWh, effectively reducing the cost of wind power.) The American Wind Energy Association (AWEA) warns that wind energy developers and manufacturers will stop making investments in equipment and facilities if the PTC is not extended. They also note that wind energy companies are already reporting a decrease in wind energy investment due to the current uncertainty over the extension of the PTC.

Note that the PTC is needed to make the cost of wind competitive with the traditional fossil technologies price-wise, and that the traditional technologies do not get a PTC.

The Energy Information Administration increased their levelized cost of generating technologies in their Annual Energy Outlook 2009 from the prior year’s version by about 50% due to the increase in the costs of construction. In 2012, the cost of constructing a new coal or gas-fired generating plant is 7.86 cents per kWh, including a 3-percentage point cost of capital penalty against coal due to risk inherent in GHG-intensive projects. The cost of onshore wind is 9.11 cents per kilowatt hour without the PTC. Thus the PTC is needed to make it economic against traditional fossil plants. These costs include capital, fixed and variable O&M, and transmission.


  1. Ed Reid  

    Cost is one side of the issue. Value is the other side.

    The poster child for this issue is ERCOT West. Much of the wind power is available at night, when it is needed least. The wind power availability frequently drives power prices negative in ERCOT West at night, because the wind power available plus the minimum net power output of idling conventional generators needed for the next day exceeds demand. Since the wind power cannot be stored and the PTC provides positive revenue to the wind generators, the wind power is dispatched anyway.

    The wind developers blame the problem on inadequate transmission; and, billions are about to be invested in expanded transmission capacity needed only at night to “smear” the available wind power over a large enough population base to make it useful.


  2. Saint  

    Some of these numbers appear to be a bit off. Correct me if I’m wrong, but I come up with a fossil subsidy of 0.038 cents (not dollars) per kwh and a wind subsidy of 2.34 cents per kwh (not 0.234 dollars/kwh). This means that on a per kwh basis, the subsidy for wind is just over 60 times that for fossil fuels.


  3. rbradley  


    Right–and now corrected.

    My error (not Ms. Hutzler’s) in converting from MWH to KWH.


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