The Production Tax Credit (PTC) for wind energy is fast becoming the zombie of taxpayer nightmares. Every time you think this special interest giveaway is dead, Sen. Chuck Grassley, R-Iowa, and his alliance of subsidy-hunting policymakers conduct a legislative séance and conjure it from the great beyond.
Just before recessing for the month of August, the Senate Finance Committee approved a plan extending tax incentives for wind and other renewables. Smarting from his recent challenge from a Tea Party-backed insurgent, Utah Sen. Orrin Hatch seemed quick to forget its lesson as he supported the PTC extension. Now that he’s safe, he’s free to go back to his big-spending ways for another six years.
Congress has been supporting wind production since at least 1978 on the premise that wind is an infant industry that needs just a few more years of mother’s milk – i.e. taxpayer handouts -- to be cost-competitive with more affordable and reliable sources of energy.
But wind has to be one of the oldest infant industries on the planet. In 1882, Thomas Edison built the Pearl Street Station in New York City—a coal fired power plant. A mere 5 years later, a Scottish academic named James Blyth built a wind turbine to make electricity and run the lights on his cabin. After 125 years of generating electricity, you would think that wind would be ready to stand on its own without special favors from the federal government, but apparently it is not.
Wind proponents have been telling us since at least the early 1980s that wind is almost cost-competitive with coal and natural gas. The American Wind Energy Association asserts that wind is “cost-competitive with virtually all other new electricity generation sources.” If so, why are wind proponents still asking for help through the Production Tax Credit?
The reason is plain. The PTC is a large portion of the wholesale price of electricity, giving wind producers the incentive to produce electricity even when they have to pay the electrical grid to take the power they generate.
Specifically, the PTC is a credit of 2.2 cents per kilowatt-hour of electricity produced from wind (and other specified sources). The wholesale price of electricity is less than 3 cents per kilowatt-hour in some markets to about 4.5 cents per kilowatt hour. This makes the PTC worth 50 to 70 percent of the wholesale price of electricity.
The law as currently written provides the two things the wind proponents claim they want—certainty and a phase out of the tax credit. As the law stands, the tax credit ends at the end of the year. This is definitely a certain outcome and a phase out.
Wind has a long history and it continues to be expensive, inefficient, and unsustainable. It’s about time that Congress ends the Production Tax Credit once and for all.
Thomas Pyle is president of the Institute for Energy Research.