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March 4, 2015

Obama Budget to Make Wind Subsidies Permanent

March 4, 2015
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In his fiscal year 2016 budget proposal, President Obama wants to make the major wind subsidy (the production tax credit or PTC as it is commonly called) permanent.[i] For the past 23 years, the American taxpayer has subsidized wind power to the tune of tens of billions of dollars without seeing any major contribution to U.S. energy supply. In 2014, wind energy supplied less than 2 percent of total U.S. energy needs and less than 5 percent of U.S. electric power needs. That, however, has not changed the federal government from wanting wind energy to contribute 20 percent of U.S. electricity supply by 2030. That would require more than a 15 percentage point increase in just 15 years.

The PTC pays the wind operator 2.3 cents for every kilowatt hour that wind energy is produced for the first 10 years of operation. It was first implemented in 1992 and has been extended by Congress several times. In 2012, the Congressional Budget Office estimated that a one-year extension would cost the American taxpayer $12 billion over 10 years.[ii] When the PTC was retroactively extended at the end of last year, it was estimated that the retroactive extensions alone would cost $6.4 billion. [iii]

Wind Power Is Not New

People have used wind power since early recorded history, propelling boats along the Nile River as early as 5,000 B.C. and helping Persians pump water and grind grain between 500 and 900 B.C. Windmills then spread from Persia to the Middle East and were used in food production. Wind power spread to European countries, such as the Netherlands, around 1,000 A.D., where it helped to drain lakes and marshes in the Rhine River Delta. In the late 1800s, wind power was used in North America to pump water for irrigation and to generate electricity.

In 1893, the Chicago World’s Fair showcased 15 windmill companies and their wind turbine designs. In the 1940s, wind power was used in the United States to generate electricity during World War II. But due to competition from more reliable sources, most wind turbines in the United States were shut down in the 1950s. In 1978, Congress passed the Public Utility Regulatory Policies Act, requiring companies to buy electricity from renewable energy sources – including wind. In 1992, Congress passed The Energy Policy Act, authorizing at that time a production tax credit of 1.5 cents per kilowatt hour of wind-power-generated electricity for the first 10 years of turbine operation.[iv]

Since the mid-to-late 1990s, states have joined in the move toward wind power, instituting renewable portfolio standards that mandate a certain percentage of qualified renewable energy to be part of the electricity mix and providing tax benefits to renewable sources. California was the first state to discuss a detailed design for an RPS policy in 1995. Since then, 29 states and the District of Columbia have implemented an RPS, resulting in the addition of a sizable amount of renewable energy capacity in the United States.[v]

At the end of 2013, the United States had 61,100 megawatts of wind power that generated 4.1 percent of the nation’s electricity in that year.[vi] Wind power capacity has exceeded that of solar power because wind power is less expensive than solar power[vii]. Because both wind and solar have lower capacity factors than fossil fuel and nuclear technologies, the amount of electric generation produced from wind and solar power has been much less than if the same capacity was built using fossil fuels or nuclear power.

Investments in Wind Energy Tied to the PTC

Whenever the PTC is set to expire, investments in wind energy drop. In 2000, 2002 and 2004, new wind installations dropped significantly when the PTC expired. But the government renewed the PTC each time, allowing the wind industry to continue to benefit from taxpayers’ funds. In 2013, when the PTC was expected to expire, new wind installations fell by 92 percent. However, later in the year, Congress added a provision to the American Taxpayer Relief Act that allowed projects constructed before 2014 to receive the tax credit, broadening the definition of what projects qualified from beginning operation in that year to beginning construction. President Obama’s 2016 budget proposal, if passed by Congress, would make the PTC permanent with continual reliance on the taxpayer for assistance.

Tom Kiernan, CEO of the American Wind Energy Association, said renewable energy “is no longer a niche part of the market; it is now main stream.” However, despite renewables no longer being a niche market, Mr. Kiernan indicated that renewable energy still needs policy support from the state lawmakers and Congress. That policy support from the federal government is large. President Obama’s fiscal year 2016 budget proposal of $4 trillion includes $7.4 billion for clean energy technology programs. The U.S. Department of Energy alone is asking Congress for $29.9 billion in discretionary funding for fiscal year 2016, a 9.2 percent increase from current funding levels. [viii]

Conclusion

If wind energy is the renewable source to supply this nation’s electric power grid, it should be able to stand on its own without support from state and federal governments. The U.S. wind industry has had 23 years of federal government assistance to become independently profitable. Based on history, the wind industry has no hope of reaching the Department of Energy’s goal of a 20 percent share of the generation market by 2030 on its own, and thus the government uses our tax dollars to sustain an industry that cannot sustain itself.

[i] The Hill, What do we have to show for government subsidies of wind power?, February 24, 2015, http://thehill.com/blogs/pundits-blog/energy-environment/233562-what-do-we-have-to-show-for-government-subsidies-of

[ii] Energy and Environment Daily, Crux of PTC phaseout plan—cost—proves elusive, December 17, 2012, http://www.eenews.net/eedaily/stories/1059973895[ii] U.S. Department of Energy, History of Wind Energy, http://energy.gov/eere/wind/history-wind-energy

[iii] BNA, House Approves Tax Bill With One-Year Extension of Wind, Energy Incentives, http://www.bna.com/house-approves-tax-n17179917975/

[iv] U.S. Department of Energy, History of Wind Energy, http://energy.gov/eere/wind/history-wind-energy

[v] Lawrence Berkley National Laboratory, Renewable Portfolio Standards: A factual Introduction to Experience from the United States, April 2007, http://emp.lbl.gov/sites/all/files/lbnl%20-%2062569.pdf

[vi] American Wind Energy Association, U.S. Capacity and Generation, http://www.awea.org/AnnualMarketReport.aspx?ItemNumber=6305

[vii] Energy Information Administration, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

[viii] SNL, With gas, renewables surging, analysts see long-term shift to ‘sustainable’ energy, February 4, 2015, https://www.snl.com/Interactivex/article.aspx?CdId=A-30959400-10807

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