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  • Even Wind Executive Doesn’t Want Wind Tax Credit

    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, the largest nuclear operator in the U.S., is also among the nation’s largest wind operators. According to a company fact sheet, Exelon runs 38 wind projects in nine states.

    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.

    Posted in Featured [slideshow_deploy]

    9 Responses to Even Wind Executive Doesn’t Want Wind Tax Credit

    1. Jacob AG says:

      This isn't an argument for the PTC per se, but a standard argument for subsidizing clean, renewable energy in general is that there are externalities associated with dirty, non-renewable energy sources.

      (FYI, an externality is when the price tag on a product doesn't naturally include certain costs and/or benefits associated with its consumption. For example, when you pay your electric bill, you generally don't pay for the environmental damage associated with burning the coal it took to make your electricity, hence coal-based electricity is inefficiently under-priced and over-consumed in a competitive market)

      Has Heritage tried to compute the size of renewable-energy-related externalities? If so, how do they stack up against the cost of subsidies like the PTC?

    2. Jimmy says:

      Another misleading blog from the Heritage Foundation…first of all….equally comparing the cost of wind versus other resources you must account for fuel costs…the entire cost of wind is about .3-.5 cents including fuel..if you compare to other resources, all they look at is capital costs and not fuel….fuel accounts for almost 80% of the cost of production of electricity from natural gas…with volatile gas, you get volatile rates..

      As a result , wind contracts have NO volatility for 20 years…just like a fixed rate mortgage…

      Secondly, ramping or cycling up and down nuclear plants about 15-20 percent is not costly nor inefficient…in fact, if you can show me where nukes are ramping as a result of wind, I will buy you a steak dinner (it is mostly inefficient coal plants that turn off and allow combined cycle to follow load) !

      • Ken Watson says:

        If wind power costs .5 cents why does it need a subsidy? It is cheaper even than newly cheap gas. No, the other producers are NOT just looking at capital costs. If so, how is the 5 cent wholesale price reached? That is what they are selling it for after ALL costs. Yeah, that gas volatility is killing us, except it is a price implosion. Yeah, it took down T Boone Pickens, too bad so sad, but is the only thing keeping electricity from necessarily skyrocketing. But the real problem with wind is its unreliability. The other producers send us juice whenever they are turned on with a big red button. Where is the big red button on the wind? Also we must take skeptically the figures strewn around about "electricity generated" in the nation at large. Yeah, it may be generated at each pinwheel hub, but how much has gone out and made a piece of toast? The 3.6% total production figure refers to the former, not the latter, which is the only thing beneficial to paying customers, wholesale or retail.

    3. Peter says:

      Implying wind energy is simply "subsidized", unfairly priced electricity while nuclear energy is fair and competitive is absurd. Have the authors heard of the Price-Anderson Act? Exelon's nukes would not exist without it. Wind energy is now cost competitive with any new form of electricity generation, and Exelon's complaints stem from their large–and yes, heavily subsidized–nuclear portfolio being, in some parts of the country, uncompetitive with subsidized wind. Their loss. All forms of electricity generation are subsidized, be it through indirect or direct spending, or failure to account for externalities (which are very real: acidification, mercury deposits, mountain top removal and downstream impacts, climate change…the list goes on). Subsidies establish market drivers, have existed for decades, and are a matter of national energy policy. Any debate over their merits needs to include a full and fair account of spending over time. The above editorial fails miserably in this respect. I recommend the recent report "What Would Jefferson Do: The Historical Role of Federal Subsidies in Shaping America's Energy Future" for anyone interested in educating themselves further.

    4. Rick Baugh says:

      Jimmy, while the cost of wind "fuel" may be "free" to the producer, the supply of it is highly volatile. If all we had was wind power, and a free market in which it operated, we would see normal supply vs. demand economics drive our cost of electricity according to how windy it was. When wind was more plentiful, the cost would go down, and when it was less so the cost would go up. This is no different than how the market drives the cost of coal or natural gas, except that wind is so volatile that supply can drop to the point of insufficiency to meet market demand at any cost.

      The very good point of this article, which you seem to have missed, is that the government has twisted the free market forces to make it APPEAR that wind is a viable power source a the EXPENSE of the traditional power sources ON WHICH IT DEPENDS. The peril that will happen, if not corrected, is that there will come times when no one will have the dependable power on which our economy and lifestyle depends.

    5. Lloyd Scallan says:

      If DeMint and Pompeo get their legislation passed into law, and "IF" the overall tax rate would be lowered,
      does anyone think that the price of oil, the price at the pump (or a Jimmy Carter relaps), or the price of energy would also be lowered as well? Oh, there MAY be a slight reduction of taxes on one end, but it would be offset with higher energy cost on the other and then some. It goes back to the same "all of the above"approach Obama like to use to continue his kick-back scheme to his finical and envoronmential supporters. Those "targeted tax credits" to proven energy providers, make it possible keep energy prices low. Without them, Obama's plan to "have energy prices to skyrocket" would come to reality.

    6. SED, Inc. says:

      It's more than a bit hypocritical for the executive chairman of Exelon to come out against the PTC for wind energy, since the U.S. nuclear power industry has been propped up by a generous array of government subsidies that have supported its development and operations for over 50 years, and Exelon has benefited greatly from this and fossil fuel subsidies over many years, as well.
      If Mr. Shattuck wants to really talk about "fair markets", let's level the playing field for all energy sources…the wind industry would be more than happy to compete without subsidies if nuclear and fossil fuels give up theirs too. Then we might discern the true costs of each. We won't hold our breath for that to happen though.

    7. Saltire says:

      Another subsidy that needs to be stopped, along with ethanol subsidies and solar power subsidies.

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