It’s All About the Tax Credits, Baby
We’re often told that renewable energy will power the future. But a new study reveals that wind energy—America’s largest renewable source—is far more reliant on subsidies than advocates may care to admit.
A groundbreaking new study by the Lawrence Berkley National Laboratory found that wind power plants significantly reduced their output once their eligibility for federal subsidies expired. Wind energy is subsidized through the Production Tax Credit (PTC), which reimburses wind power plants between $15 and $24 for each megawatt hour generated over a period of ten years once the plant is operational.
The study examined pre-2008 “old” plants that have operated during and after their PTC eligibility, as well as post-2008 “new” plants that do not have post-PTC data available yet. The study found that production dropped roughly 10 percent in the years after PTC reimbursements ended, and 13 percent overall after 17 years.
The authors note that this coincidental timing
suggests that maintenance and operating strategies change when projects lose access to the sizable tax benefits afforded by the PTC…After the window of PTC eligibility has passed, operating profitability declines and, therefore, so does the operational rigor.
Overall, the study found
clear evidence that operators are carefully adjusting behavior based on the PTC status to maximize profitability, which provides an additional level of plausibility to the idea that operators would also change maintenance regimes based on the PTC status.
This study adds to the growing evidence that wind plants are quite reliant on subsidies. The federal Energy Information Administration forecasts that new wind plants will face a steep drop in construction after PTC eligibility expires in 2020. While the tax credits will continue for ten years for plants that are deemed eligible before PTC expires, new plants won’t be eligible after 2020.
Show-Me Institute analysts have often written about how subsidies affect markets in any industry, and energy production is no different. Markets should not be designed so that companies chase after subsidies and change their behavior to maximize handouts. Energy subsidies distort markets, alter industry behavior, and rack up large taxpayer bills.
More wind power plants are being built in Missouri to qualify for the PTC before eligibility ends in 2020. Given the perverse effects of wind power subsidies, Congress should not extend the PTC as it has several times before and Missouri should not consider a state-level replacement once PTC eligibility expires.
Tax revenue will be hard enough to come by in the coming years. It should not be given away to prop up favored private industries.