The appropriately titled "Distortions of Wind Power" by Phil Gramm in a recent Wall Street Journal does exactly that: distorts the facts about wind power and the production tax credit (PTC).
The opinion piece recycles many of the anti-wind groups' greatest myths in its assault on wind power. Now more than ever, telling the truth about wind power and the PTC is needed. The following facts allow us to clear the air about wind power.
1) The production tax credit is a tax incentive, not a handout. Federal tax incentives similar to the PTC have helped all of our domestic energy industries grow and produce the energy that our economy needs to function and prosper.
2) The PTC reduces taxes on the operators of wind farms and leaves more of the money they earn from electricity sales in private hands. The PTC helps to attract private investment not only in wind projects, but in component manufacturers, suppliers, trucking companies and more.
For new energy technologies to gain a foothold in the marketplace so that the U.S. can diversify its energy portfolio and reduce its vulnerability to fuel price shocks, some degree of initial support is needed.
As one particularly informative study on historical energy incentives by DBL investors states: “Current renewable energy subsidies do not constitute an over-subsidized outlier when compared to the historical norm for emerging sources of energy. For example: … the federal commitment to [oil and gas] was five times greater than the federal commitment to renewables during the first 15 years of each [incentive’s] life, and it was more than 10 times greater for nuclear."
Due to effective tax policy in the form of the production tax credit (PTC), wind energy has created thousands of jobs in the United States and economic boom times for rural communities all around the country. In fact, by creating all of this economic activity, the wind PTC generates more tax revenue that it offsets, so it does not result in a net cost to taxpayers. However, wind power manufacturing, construction and other related jobs are currently at risk nationwide due to the uncertainty surrounding the PTC.
3) Wind power is always providing America value.
Setting aside for the moment the fact that no power plant runs 100% of the time, here are a few facts about the value wind power provides America.
Wind farms provide a steady source of income to farmers and ranchers who host wind turbines on their property (the "rent" for hosting a wind turbine amounts to $3,000 to $7,000 per year or more).
Wind farms save water. Thermal power plants–coal, nuclear, and natural gas–use an average of half a gallon of water for each kilowatt-hour of electricity generated, which means that roughly 5,500 gallons of water are consumed every year to produce the electricity used by an average American home. Wind uses virtually no water.
Using more wind power means that less air pollution, water pollution, and hazardous waste will be produced. Less mining and drilling for fuel will be needed. Less transportation of fuel will be needed (a secondary energy savings). The list goes on and on.
4) Wind power lowers electricity prices.
One of wind energy's primary benefits–holding consumers energy costs down–has been called a flaw by some competitors and electric utilities. The truth is that wind energy does reduce both wholesale and retail electricity prices and that is good for American consumers.
Wholesale electric power prices have been reduced in areas of the country where wind is being developed. Adding wind energy to the grid displaces the output of the most expensive and least efficient power plants, saving consumers money and reducing pollution. Shale gas and lower electricity demand contribute to lower prices as well. But power system analysis of the Midwest, Texas, Mid-Atlantic and New York by independent experts using standard power modeling methods shows that market prices with wind have been significantly lower than if wind had not entered the market.
One should not be surprised that these lower prices are concerning for owners of existing generation. Competition can be intense. Lower prices are good for consumers, but not all suppliers.
Energy Information Administration data confirms that negative prices accounted for only 1 out of every 4,500 electricity price points in 2011, and that many of these instances were caused by low-cost hydroelectric or nuclear output. The already rare instances of negative prices are likely to decrease even further over the next few years as long-needed upgrades to the power grid allow larger quantities of low-cost energy resources like wind to reach the consumers who want them.
National laboratory data indicates that wind energy costs have fallen by one-third since 2008, chiefly due to technological improvements that have greatly increased the output of wind turbines. In an effort to hide these reductions, the opinion piece cherry-picks data that is three years old, from when all energy productions costs were at their peak before the economic crisis hit. Interestingly, this illustrates an important benefit of wind energy – due to its lack of fuel costs, wind energy protect consumers from volatility in the price of fossil fuels, much like a fixed-rate mortgage protects consumers from fluctuations in interest rates.
For more on the consumer savings benefit of wind energy, see this May 2012 report from Synapse Energy Economics, which finds wind power can save Midwestern consumers between $3 billion and $9.5 billion a year by 2020. Many studies in other parts of the U.S. have found the same. Consumers benefit from competition—and they’re getting a great deal with wind energy right now, at a time when our economy really needs it.
5) Wind energy makes the power system more reliable.
In 2011, wind energy provided around 20% of the electricity in Iowa and North Dakota, and on several occasions has provided more than 56% of the electricity used by the main Colorado utility. It is far more costly for grid operators to reliably integrate large conventional power plants, as they experience failures that are instantaneous and unpredictable, requiring grid operators to maintain expensive fast-acting backup reserves 24/7/365. In contrast, because wind plants are smaller and spread across large areas, changes in wind energy output occur gradually over many hours, and advanced weather forecasting allows prediction of these changes days in advance. As a result, grid operators can reliably integrate wind using the same flexible resources that they have used to accommodate fluctuations in electricity demand and supply for more than a century. All utility and grid operator data confirms that wind energy results in major reductions in pollution and fossil fuel use, as adding wind energy displaces the least efficient power plants first.
6) Wind power has benefited Texas consumers and the Texas economy.
The PTC has driven tens of billions of dollars of private investment to many parts of the state, and created thousands of construction and manufacturing jobs.
Wind has been a positive economic contributor in Texas. It has lowered electricity costs for consumers, as stated by the Texas Public Utilities Commission in its 2009 report to the Legislature. In 2011, annual property tax payments to the state by wind project owners were approximately $115 million, and local ranchers and other landowners collected $31 million in annual land lease payments. In February 2011, the Texas grid operator explicitly commended wind energy for helping to keep the lights on when dozens of conventional power plants failed during a cold snap.
Wind has helped Texas diversify its energy sources and take advantage of its natural resources, and Washington should not adversely single wind out among energy sources; the PTC should be immediately extended. U.S. government support fossil fuels and nuclear totaled over $600 billion from 1950 to 2006, according to a study conducted for the Nuclear Energy Institute. As a business tax credit, the PTC for wind is based solely on project performance, not evaluation by government officials.
Now is the time to act and extend the PTC. If the PTC is extended as expected, employment in the wind industry is predicted to grow to 100,000 American wind jobs over the next four years, with the industry attracting $15-20 billion a year in private investment.