Americans are hearing plenty these days about a soon-to-expire federal subsidy that has fertilized the wind-energy industry with results that can be seen for miles – and miles – along Interstate 84 as it follows the Columbia River (talk about a footprint). President Barack Obama wants to extend the production tax credit for wind power, thus preventing the industry from hitting a speed bump. Challenger Mitt Romney is far less fond of the credit, and a dust-up has ensued.
Meanwhile, the U.S. Department of Energy has released a hefty compendium of acronyms and numbers enticingly dubbed, “2011 Wind Technologies Market Report.” The report says the obvious: When the tax credit expires at the end of the year, windmills will sprout less frequently. But it says something else significant, too, and here we paraphrase: Wind has a gas problem.
Wind power, the report explains, looks better or worse at any given moment depending upon its price compared with wholesale electricity prices. The wind power prices tracked by the report’s authors, by the way, don’t reflect actual generation costs, as “prices are suppressed by the receipt of available state and federal incentives” such as the production tax credit. Anyway, these artificially reduced prices compared “favorably” with wholesale electricity prices from 2003 to 2008.
In 2009, however, the relative price of wind power began to move into ugly territory. The phenomenon is partly the result of purchase agreements for wind power that had locked in high prices. But the comparative spike in prices is also due to the sudden abundance – and, thus, cheapness – of natural gas, which is used to generate electricity. And that abundance isn’t entirely the result of economic conditions, which have moderated energy demand.
Gas prices, the report worries, “may not ultimately rebound to earlier levels as the economy recovers, due to the ongoing development of significant shale gas deposits.” The widely held belief that gas will remain cheap for quite some time “puts the near-term comparative economic position of wind energy at some risk, absent further reductions in the price of wind power (and absent supportive policies for wind energy).”
Not a happy picture for the wind industry, to be sure. But who’s to say wind power will become more competitive in 10 or 15 years, when the price of relatively clean natural gas may have risen substantially? For all anyone knows, some new technological breakthrough will have occurred to complicate things. How long is the public expected to subsidize the wind industry until it’s forced to stand on its own?
The renewable energy production tax credit has expired multiple times since its creation in 1992, only to be resurrected in response to pressure from affected industry groups, alternative energy advocates and supportive politicians. Such is the nature of subsidies, which, once created, are exceptionally difficult to end.
But at some point, they must end, and this is as good a time as any for wind’s production tax credit. At a time of soaring deficits, reduced personal income and widespread uncertainty on many economic fronts, letting the credit expire for new projects would not be a national crisis.
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