The expiration of the production tax credit (PTC) for wind and other renewable energy sources is the subject of intense debate. Some see the credit as a tool for creating jobs and battling global warming. Others see it as an expensive, market-distorting device that rewards inefficiency and punishes competitiveness. Support for the latter position is growing—for good reasons, as the full economic impact of the PTC is beginning to be felt on a wider scale.
Even some who benefit from this taxpayer-funded handout to industry are now speaking out against it.
Exelon’s executive chairman, Mayo Shattuck, came out against an extension of the wind production tax credit at an Energy Policy Forum last week.
Margaret Ryan at AOL Energy reports:
“We are not anti-wind,” said Mayo Shattuck, Executive Chairman, Exelon Corp. “But there comes a time when we need free-market price signals,” so businesses can make decisions on investments for the next 20 to 60 years.
Shattuck said wind turbines tend to generate the most power when it’s least needed, but the federal subsidies allow operators to bid the power into grid markets at a price of zero, undercutting all other generation. As a result, he said, nuclear operators, whose plants can’t cycle easily, end up paying the grid to take their power.
In essence, the government subsidy allows wind producers to sell their electricity for less than market price. They profit even if they offer it at a prize of zero, because they still pocket the 2.2 cents of subsidy for every kilowatt-hour sold. To paraphrase Heritage energy economist David Kreutzer: While 2.2 cents may not seem like much, with wholesale electricity prices at about 5 cents per kilowatt-hour, the subsidy represents about 40 percent of the wholesale price of electricity.
This is patently unfair to energy producers that work to offer competitively priced electricity on their own. It is particularly bad for nuclear power plant owners. Nuclear energy is very inexpensive when plants are operating continuously. However, once a nuclear plant is up and going, reducing its output is very expensive. So expensive, in fact, that it is cheaper for nuclear utilities to offer their electricity below cost to compete with the subsidized wind power than it would be to ramp down when wind is being offered.
The problem is obvious. Energy companies cannot afford to give electricity away for free to compete with subsidized wind and stay in business for long. The irony is that wind power’s existence depends on these other, more reliable and more affordable sources. Since wind produces electricity only about 30 percent of the time, it requires dependable sources as backup to ensure grid reliability. And because these sources are generally less expensive, integrating wind into a portfolio dominated by nuclear, coal, and natural gas hides the real costs of wind energy.
But what should concern every American is not the PTC’s impact on Exelon. It’s how the PTC impacts individuals. Government policies that cause higher electricity prices and industrial inefficiency:
- Hurt the economy. They make production more expensive, which means that U.S.-based products are at a competitive disadvantage. This means fewer jobs for American workers.
- Make products more expensive for everyday Americans. This leaves fewer resources to make other purchases, invest, or to save.
- Hurt lower-income households and senior citizens most directly. These vulnerable groups spend a much larger portion of their income on energy, and senior citizens also use the most residential energy per person.
Congress should let the PTC expire as scheduled and offset the resulting tax hike with broad tax reductions elsewhere. For example, legislation by Representative Mike Pompeo (R–KS) and Senator Jim DeMint (R–SC) would remove targeted tax credits for all energy sources and broadly lower the tax rate.