A “temporary” multibillion-dollar federal wind-energy subsidy is sailing toward another extension, even as Washington lurches closer to the “fiscal cliff.”
The 20-year-old Production Tax Credit, due to expire at the end of this month, is a case study in the power of green politics over free-market economics.
If continued in their current form, the wind subsidies will cost taxpayers an estimated $12 billion next year to keep turbines whirling.
Dominion Virginia Power says it’s money well spent.
“Dominion supports the continuation of the Production Tax Credit for wind generation. We do believe there is a place and a time for subsidizing energy development as a way to kick-start a new industry, such as offshore wind generation,” said company spokesman Jim Norvelle.
Dominion last week received a $4 million Energy Department grant for a test turbine project in the Atlantic Ocean.
The grant was among seven awarded by the DOE, with additional federal funding scheduled for subsequent phases.
“The overall goal of these projects is to see what innovative engineering can occur to lower the cost of offshore wind generation,” Norvelle said.
Skeptics counter that Washington’s wind subsidy and grant programs actually retard innovation and unlevel the playing field in the energy market.
“An industry built on government handouts exists at the political whim of those in office,” says Lisa Linowes of the Industrial Wind Action Group.
“The size of the subsidy relative to wholesale prices is distorting competitive wholesale energy markets and harming the financial integrity of other, more reliable generation.”
Nick Loris, policy analyst at the conservative Heritage Foundation, said wind-energy subsidies to Dominion and others “ don’t make sense either way.”
“If it’s economical technology, then the subsidies are merely padding the profits. If it’s uneconomical, it shouldn’t be here in the first place,” he told Watchdog.org.
Environmental groups point to long-standing credits and subsidies provided to gas and oil producers.
“The dirty coal, oil and gas industries have received billions in government subsidies for decades, and it’s time that these handouts stop,” says Dawone Robinson, Virginia policy director of the Chesapeake Climate Action Network.
“Extension of the wind Production Tax Credit is vital if we are serious about taking advantage of the environmental and economic benefits of the wind-energy industry.”
Loris says two wrongs don’t make a right. And he calls the wind Production Tax Credit “probably the biggest subsidy in the energy field.”
Set at 2.2 cents per kilowatt, the PTC effectively discounts the price of wind power by 40 percent.
“That would be like putting a $40 subsidy on a $100 barrel of oil,” Loris says. The wind subsidy, he asserts, “allows providers to sell at a loss and still collect a profit from the taxpayer.”
Prior to 2008, PTC-eligible wind ventures generated just 15,000 megawatts, and the total cost of the subsidy during its first 15 years was less than $6 billion.
Since then, with subsequent renewals of the PTC, subsidized wind farms have ramped up to 50,000 megawatts, and the annual carrying cost to taxpayers has jumped to $12 billion.
Some regions of the country – particularly the Southwest – are reaping a whirlwind. On Dec. 2, a record 30.2 percent of the Southwest Power Pool’s electric generation came from wind. The record for a single utility system was set earlier this year when, at one point, Exel Energy’s Colorado system garnered 56 percent of its power from wind.
Still, wind accounts for only an infinitesimal percentage of U.S. generating capacity, and Loris contends that the PTC program is counter-productive.
“It creates technological stagnation because spending efforts are directed to lobbying. If these (wind ventures) were truly cutting-edge technologies, costs would be driven down.”
Rick Webb, senior scientist at the University of Virginia’s Department of Environmental Sciences, opposes any extension of the PTC until the tax credits are tied to performance and analysis of any actual environmental tradeoff.
“When the PTC was created 20 years ago, it was supposed to be a temporary measure to allow emergence of a new technology. Now it has become just another mechanism to transfer government money to large corporate interests with even less than the usual accountability,” Webb says.
Dominion’s Norvelle says the wind subsidies “would not have to go on indefinitely,” and other major companies are bracing for a possible end of the PTC program.
Linowes reports that Vestas and General Electric, among others, are “preparing for a non-PTC business model.”
“Layoffs have been scheduled, new markets in South America, Africa and elsewhere have been identified, and cash flow issues are being addressed through asset shedding and the possible partnering with other corporations,” she said.
Others are more bullish, forecasting that the wind-energy market is here to stay — with or without tax-credit support.
Robinson acknowledges that subsidies for renewable energy have “caught up with, if not surpassed, the fossil-fuel industry,” but adds that from 2002 t0 2008, fossil-fuel subsidies outpaced renewable subsidies by 250 percent.
Loris predicts a mixture of corporate rent-seeking and political grandstanding would probably keep the federal wind subsidies blowing into the new year.
“There’s a lot of political interest invested in an extension. Republican governors in Iowa and Kansas stand to benefit, and there’s heavy lobbying going on.”
Last week, Democratic Govs. John Hickenlooper of Colorado and John Kitzhaber of Oregon joined a bipartisan pilgrimage to Congress, urging lawmakers to extend the credits.
“I wouldn’t be surprised if (the PTC) is included in a bigger budget bargain,” Loris said. “If it’s not, that’s a good sign. But I’m skeptical.”