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Over the next two months, members of Congress, the President, and his staff will be tasked with addressing and correcting the issues of debt, taxes, and spending, unmasked by nearly half a decade of weak economic growth. These issues are complicated no matter how easy either side portrays their solution to be. Years of ambivalence towards the cyclical issues surrounding the country’s finances and economy have led many to make inefficient decisions, and come to depend on the status quo. Whether or not this balance limps on in hopes of a stronger economy to once again cover up the perceived issues, or the programs are gutted and reformed with potentially devastating short-term consequences in the name of getting it over with, difficult decisions will be necessary.
The speculation has already begun and pundits have taken to the tea leaves and crystal balls, trying to decipher everything from rhetoric to body language of the power players in order to predict what, if any, kind of deal is reached before automatic tax increases and spending cuts go into effect. However, pondering a government solution to a broad scale problem requiring complex solutions is pointless if the government cannot correct problems with more clear-cut data and simple solutions.
This litmus test is coming, in the form of the Wind Production Tax Credit (PTC) and its looming expiration at the end of the year. The PTC represents a lucrative opportunity for both political parties. It is a model program for both liberals and conservatives to flex their ideological muscle, eliminate the program, and claim victory. The best part? This win-win situation is already built into current law.
The Wind PTC is a federal tax credit that has existed since 1992. It was designed as a temporary program to incentivize the production of electricity through wind turbines by providing a tax break determined by the amount of units of power generated. Like most programs born out of central planning by the federal government, the PTC was well intentioned only to become plagued by consequences that were entirely unintended.
Wind power is the utility equivalent of a porous roof. Intermittency of wind directly translates into gaps in the electrical supply that generally do not match fluctuations in market demand. Peak and base wind production is often found to be the inverse of peak and base demand. For instance, hot, stagnant days produce a huge demand for electricity given all the A/C units drawing on the grid; but it is generally at this time that wind production is at its lowest or a complete standstill. Allowing Mother Nature to determine when and how much electricity is to be used is obviously an unacceptable scenario, so, in order to compensate for the intermittency, balancing facilities that are powered by conventional fuels like coal and natural gas have to be built at additional capital cost; accompanying an already immense cost of developing the necessary swaths of land necessary for erecting the towering turbines.
It’s for this reason that a 2011 study found that generating the same amount of power with wind technology and balancing facilities versus a conventional power plant of the same capacity required an additional $44.5 billion in capital.*
Intermittency issues aren’t isolated to periods where wind is lacking. Inversely, cool, breezy nights generate the most power while demand is low as people have their lights and cooling units off. This results in a phenomenon known as negative pricing. Lacking in adequate storage technology, wind farms force the grid to take the power generated at these times, despite the lack of demand. Instead of shutting down the facility, the federal PTC is so lucrative that it is within the self-interest of wind facility managers to actually pay consumers on the grid to use the power, profiting solely from the remaining difference from the tax credit.
Over the past two decades, taxpayers have subsidized this behavior to the tune of $20 billion dollars. The increase in wind facilities responding to the federal incentive, along with state clean energy mandates, prices a one year extension of the PTC program at an additional $12.1 billion.
Proponents of the extension don’t deny the problems created by intermittency. The additional capital cost, they argue, is worth ensuring access to cleaner energy. They also will argue that the heavy subsidy of the industry is what allows wind to compete with fossil fuel subsidies. Both of these assertions are only valid given the false presumptions that 1. wind energy is clean energy and 2. wind can’t compete because oil and gas are also subsidized.
Wind energy is not clean, again, as a result of intermittency. Balancing facilities are forced to work harder, like a car in stop-and-go traffic, to produce energy while keeping up with ever-changing weather patterns. The same study that compared the wind farm combined with a balancing facility to the conventional power plant found that generating the same amount of power with wind results in only a 2 percent reduction in CO2 emissions over a year. Essentially, major investment makes a minor difference.
Another inconvenient statistic to wind power proponents is the fact that wind is significantly more heavily subsidized than any other source of electricity. Americans produce power through coal, natural gas, petroleum, biomass, geothermal, solar, hydroelectric, nuclear, and wind. Wind, despite only generating 2.3 percent of all energy in 2010, received 42 percent of all government energy assistance. The fact is that wind has been spinning with training wheels for over 2 decades and still cannot stand on its own while other industries continue to progress with new cleaner and more efficient technology sans tax payer support.
Producing power out of thin air may be politically popular; however it’s been a two-decade failure in practice. Democrats should seize on the opportunity to end a tax loophole that favors major corporations at the expense of taxpayers. Republicans can key on eliminating a wasteful federal program.
With compromise taking the reigns as the new third-rail in American politics, both parties should be delighted to know that a solution to the PTC debacle already exists under current law. When enacted in ’92, the program had a built in expiration. Thus far that expiration has been ignored and the program has been expanded 7 times. Years and billions of dollars later we have nothing to show for the investment other than an expensive clinic in economics, political science, and mismanagement.
The final extension expires at the end of 2012. By simply obeying the law, Congress can end a tax loophole and/or a federal program that supports an industry that is functionally a market parasite. This leaves room for both sides of aisle to claim victory and demonstrate how willing they are to work with each other ahead of a fiscal cliff battle with decidedly less obvious solutions.
* Wind Power And CO2 Emissions Willem Post, May 23, 2011The Energy Collective http://theenergycollective.com/willem-post/57905/wind-power-and-co2-emissions