With the end of the year fast approaching, one of the issues on the agenda for Congress is tax reform and how to whittle down unnecessary government spending. For us Ohioans, the federal wind Production Tax Credit (PTC) is the perfect example of the kind of expensive, wasteful policy that lawmakers need to end once and for all. The PTC should expire at the end of 2013 as scheduled.
The PTC is a 2.3 cent per kilowatt-hour tax credit that was originally created as part of the 1992 Energy Policy Act to make wind a viable and competitive energy source. Given that wind currently produces 43 times more electricity than it did in 1990, and that there is over 60,000 MW of wind capacity in 38 states—enough to power over 13 million homes—it seems pretty clear to us that the PTC has done its job.
In addition, a recent analysis by the Joint Committee on Taxation shows that extending the PTC for a single year would cost taxpayers a whopping $6 billion. And even if it were to expire at the end of this year, taxpayers are still stuck paying $12 billion for its 2013 extension. At a time where the federal government is struggling to pay its bills and facing record deficits, it’s clear that Americans and Ohioans should no longer have to foot the bill for this outdated subsidy.
Not to mention, Ohio has one of the largest renewable portfolio standards in the country, requiring that 12.5% of the state’s electricity needs be met with renewable resources. These standards are already driving the growth of renewable energy in the state, and will continue to do so regardless of the PTC.
To add insult to injury, wind energy is distorting power markets all over the country. The PTC motivates wind developers to build wind farms with no regard for market demand. As long as they’re selling power, they’re collecting the subsidy. And alarmingly, the PTC is creating an incentive for wind producers to actually pay the market to take their generation when it’s not needed. Because the PTC is worth more per MWh than the average wholesale price of power, wind generators will pay their customers to take their power in order to collect the subsidy. This creates a phenomenon called “negative pricing” which hurts conventional generators that have to keep the lights on without the benefit of an exorbitant subsidy.
The bottom line is that it’s time for the government to stop picking energy winners and losers. Congress should allow the PTC to expire at the end of the year once and for all.