It is time for the federal government to stop wasting taxpayer dollars on subsidies for wind power. In its Annual Energy Outlook 2017, the Energy Information Administration (EIA) compares the levelized costs for units coming online in 2022 and found that the levelized cost of wind turbines is competitive with the levelized cost of new natural gas combined cycle units even without wind power’s most significant subsidy—the Production Tax Credit (PTC). And, with the production tax credit, wind turbines are 18 percent less than a new natural gas combined cycle unit, according to EIA. With levelized costs competitive with its closest competitor, natural gas, there is no reason to continue to subsidize wind power.
Further, wind turbines pose others problems. Due to the uncertainty and intermittency of wind resources, reliable electricity sources must be available so grid operators can quickly power the grid up or down. This creates additional costs to the system and results in greater emissions than if more reliable electricity sources were to run at their normal rate. And, the best wind resources are usually located in remote locations, causing the need for extra transmission infrastructure and power loss inefficiencies. Further, a British study has found that the life of wind units is on the order of 12 to 15 years, rather than the assumed life of 20 to 25 years.
To get the equivalent amount of wind energy compared to traditional energy sources would require massive amounts of land. For example, for the equivalent amount of energy, wind would require about 700 times more land than a hydraulic fracturing site. For these additional reasons, the U.S. government should not continue to use the U.S. Treasury to subsidize wind.
Production Tax Credit
The production tax credit (PTC) for wind has expired and been extended 10 times. It is now set to expire at the end of 2019. This year, the subsidy is 20 percent less than its level last year of 2.3 cents per kilowatt-hour. In 2018, it will be 40 percent less, and in 2019, 60 percent less. Wind turbines get the PTC for the first ten years of their operation. It is so lucrative that wind operators can, and sometimes do, accept a negative price during periods of low demand in order to wipe out the competition. According to a Congressional Research Service study, the PTC is the largest 2016 to 2020 energy-related tax expenditure cost to the Treasury at $25.7 billion.
EIA’s Levelized Costs of Electricity
In EIA’s reference case for its Annual Energy Outlook 2017, which includes the Clean Power Plan, the agency projects that the levelized cost of new wind turbines in 2022 will be $55.8 per megawatt-hour (in 2016 dollars) without the PTC, which compares favorably with new natural gas combined cycle units, which have levelized costs at $58.6 megawatt-hour for conventional units and $53.8 per megawatt-hour for advanced units. However, with the PTC, EIA projects the levelized cost of new onshore wind units at $44.3 per megawatt-hour. Clearly, from EIA projections, the PTC is no longer needed. See graph below.
According to an Institute for Energy (IER) research study entitled the Levelized Cost of Electricity from Existing Generation Resources, the levelized cost of wind, even including the PTC, in AEO 2017 is higher than the levelized cost of existing dispatchable generating technologies. In that same IER study, in an attempt to deal with intermittent issues with wind power, the authors found that based on the Annual Energy Outlook 2015 cost assumptions for generating technologies and 2015 values for capacity factor and fuel cost, the levelized cost of natural gas combined cycle unit, the least cost dispatchable technology, backing-up wind power would be $27 per megawatt hour (in 2016 dollars).
Source: Institute for Energy Research
Date: May 1, 2017