Study blasts wind production tax credit

Exelon–commissioned study advocates credit lapse

Bill Opalka | Oct 25, 2012


The wind production tax credit (PTC), is wasteful, distorts markets and has been on the books long enough for the industry to stand on its own, a new study says.

“Wind Intermittency and the Production Tax Credit: a High Cost Subsidy for Low Value Power” makes those points and more in an Exelon Corp. (NYSE: EXE) commissioned study released this week.

“We find that the vast majority of the Nation’s wind resources fail to produce any electricity when our customers need it most, and that the subsidy is adding billions of dollars of hidden costs while undermining the reliability of the grid,” the study says.

The study was done by Jonathan A. Lesser, president of Continental Economics Inc.
Exelon, the biggest owner of nuclear generation in the U.S., was tossed out of the wind energy’s trade association for lobbying Congress to let the PTC expire. Exelon also owns 900 MW of wind generation.

The study analyzed four years of data from the Electric Reliability Council of Texas (ERCOT, with 10,000 MW of capacity), the Midwest ISO (MISO, with nearly 12,000 MW), and PJM Interconnection (PJM, over 5,000 MW).

“In all three regions, over 84% of the installed wind generation infrastructure fails to produce electricity when electric demand is greatest,” the study says.

Wind generation is most prolific in the spring and fall, when the demand for electricity is lowest, and the smallest amounts of wind generation occur in summer, when the demand for electricity is greatest.

The study also says integration costs, including back-up gas-fired generation and maintaining power system quality due to wind’s fluctuations, add an additional $500m per year nationwide. The study advocates abolition of the PTC, which a Senate-proposed extension would cost the federal Treasury $12.2bn.

The American Wind Energy Association dismissed Exelon from its board and banned in from the organization in September when the company lobbied against that proposal.

A long-term extension of the PTC has been AWEA’s top legislative priority for several years and it is currently advocating an extension after the election when Congress revisits a series of expiring tax credits across all business sectors.

Wind generation has benefitted from government support since 1978, first from the Public Utility Regulatory Policy Act, and then since 1992, with the first passage of the PTC, the study says.

“After over three decades of increasing subsidies and increasingly stringent environmental mandates for fossil-fuel resources, it is past time for the well-established wind industry to stand on its own two feet,” the study concludes.

The PTC is set to expire at the end of the year, and uncertainty in the industry has led to a boom in development of perhaps 12 GW to take advantage of the expiring credit, followed by project cancellations for 2013.

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Fact check: Exelon-funded report inflates wind integration costs

The report, prepared by Jonathan Lesser of Continental Economics, says wind integration costs are five times higher than they actually are.  The real total integration cost for wind is under $100 million, which works out to about 3 cents/month on the average electric bill, versus the savings of $5-15/month for wind indicated in a recent Synapse Energy Economics report looking at the effects of adding large amounts of wind to the Midwest utility system, so consumers clearly come out ahead.  More importantly, $100 million or $500 million is still far less than the $45 billion to $75 billion per year that consumers pay for integrating the unexpected outages of large fossil and nuclear plants. The DOE-funded Eastern Interconnection Planning Collaborative (which is controlled by the transmission-owning utilities as well as states in the eastern U.S.)estimated the net present value of those costs on page 61 here: . Those fossil and nuclear costs are $2/MWh of generation, so wind energy at $1/MWh is cheaper to integrate on both a per-MWh basis and a total basis.

To learn more, read our blog

David Ward, American Wind Energy Association

Flawed, misleading study

To get the facts on how this nuclear industry-sponsored study misleadingly exaggerates the challenge of integrating wind and completely ignores the far larger challenge and cost of reliably integrating large fossil and nuclear power plants onto the grid, read our analysis here:

Michael Goggin, AWEA

"The lady (Exelon) doth

"The lady (Exelon) doth protest too much, methinks."