In 1991, President George HW Bush signed into law the Production Tax Credit (PTC) for wind energy and other renewable energy resources. But, the wind power industry was not able to quickly and substantially monetize this new incentive. It wasn’t until 2006 (just nine years ago) that the wind industry reached 10,000 megawatts worth of installed wind power capacity and then afterwards began to rapidly expand wind power development. Over 68,000 megawatts of wind power capacity is currently installed – enough to power approximately 17 million homes. Yet, anti-wind activists (including those heavily influenced or funded by fossil fuel industries) are pushing for a complete elimination of the federal wind energy PTC because the incentive has been “too successful” and wind power has become “too cheap”. Is wind energy more valuable than the PTC?
As a tax credit, the PTC reduces the federal tax burden on wind farm developers and their investors. The federal government does not pay wind farm developers anything for the PTC (it is not a grant). Eliminating the PTC would raise taxes on wind power. Unless a wind farm actually generates power, it does not receive the PTC. Because the PTC actually requires substantial electricity generation, it rewards wind farm developers for sustaining high levels of electricity production.
Wind Power Externalities are Benefits
Some people support the wind energy PTC because it is an incentive for the positive attributes of wind power. Wind power emits no toxic air emissions to generate electricity. Wind power can help hedge against fossil fuel price volatility. Wind farms pay substantial amounts of local, state and federal taxes. Wind power uses substantially less land than fossil fuels. Wind power consumes no water to generate electricity. Even in states where wind farms have not yet been constructed, the PTC has provided huge benefits.
Fortunately, the Department of Energy has monetized some of these positive attributes of wind power for easy comparison. Currently, society pays the price for harmful air emissions; predominately through our health and the health of ecosystems. These externalized costs (externalities) do not show up on our electric bills, but we pay them never-the-less. In the Wind Vision report released in March of this year, the Department of Energy notes that wind power’s reduction of harmful air emissions would equate to a cost savings of roughly 4.0 cents per kilowatt hour of clean, renewable electricity generated. Immediately, the PTC’s value is more than offset by the cost savings associated with wind energy’s reduction in harmful air emissions.
Wind power can act as a hedge against volatile fossil fuel prices. Because wind power uses no fuel (like natural gas, oil or coal), the price of wind power is predominately made up of one-time capital costs. The Department of Energy Wind Vision report shows that reducing price volatility has a value associated with it. With 20 percent of the country’s electricity coming from wind power in 2030, the Wind Vision report estimates that consumers would save $280 billion – or about 2.3 cents per kilowatt hour. Even excluding the cost savings associated with reducing air pollution, the PTC pays for itself by encouraging the development of a renewable energy resource that reduces ratepayer costs and reduces fossil fuel price volatility.
Analysis has previously shown that the wind energy PTC pays for itself by creating additional local, state and federal taxes. For each year the wind energy PTC is extended by Congress, the estimated net benefit is $768 million. Roughly, for every $1 invested from the PTC, $1.22 are earned back through local, state and federal taxes.
Traditional power generation consumes substantial quantities of water. Power plants withdraw water, which is then heated (by coal, for example) to create steam. Steam pressure builds to turn a turbine, which then generates electricity. Because steam evaporates, traditional power plants can also consume substantial quantities of water. According to the Department of Energy Wind Vision report, supplying 20 percent of the nation’s electricity by wind power (which uses no water to generate electricity) would save some 173 billion gallons of water in 2030 from consumption by traditional power plants. That’s roughly 225 gallons of water saved per megawatt hour of wind power generated. If society values water at one penny per gallon, the water savings from wind power would be roughly 0.2 cents per kilowatt hour of wind power.
The Wind Energy PTC Levels the Playing Field
Keep in mind that wind energy is not the only energy resource that receives government incentives. Analysis from Conservatives for Responsible Stewardship show that specialized tax structures that have been granted to the fossil fuel industries by the federal government, but that are unavailable to wind power, result in an “implicit” fossil fuel subsidy of roughly 1.9 cents per kilowatt hour. At a minimum, the wind energy PTC is a necessity to correct the unfair market conditions created by specialized government subsidies for fossil fuels.
By ignoring the benefits of wind energy, anti-wind activists have concocted a false narrative against the wind energy PTC. Anti-wind activists ignore wind energy benefits including health and air quality improvements (worth 4¢/kWh), fossil fuel price volatility hedging and reduced electric rates (worth 2.3¢/kWh), new local, state and federal tax revenue (a net worth of 0.5¢/kWh) plus water savings (worth 0.2¢/kWh). These otherwise “free” benefits of wind power, and enabled by the wind energy PTC. The facts are clear: wind power’s benefits outweigh any cost associated with the PTC.