‘Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.” So said Christopher Flavin, now president emeritus of the Worldwatch Institute—in 1984.
Thirty years and billions of dollars later, the wind industry is still saying it needs taxpayer support. Congress is currently hearing this argument as it debates whether to extend the 22-year-old “production tax credit” in the lame-duck session. The PTC, which gives wind producers a 2.3-cent tax credit for each kilowatt-hour of electricity produced over 10 years, expired at the end of 2013. Now wind-industry lobbyists are roaming the halls of Congress, asking legislators to renew it as part of a tax-extenders package before adjourning on Dec. 15.
The industry’s arguments are bluster. Wind-power capacity has increased by nearly 5,000% since the PTC was created and the industry now makes billions of dollars in annual revenue. Meanwhile, the credit has devolved into another example of corporate welfare.
Over the past seven years, the PTC has cost taxpayers $7.3 billion, and it is expected to pay out $2.4 billion more in 2015. Combined with other subsidies and programs, wind generators received $56.29 in government subsidies per megawatt-hour in 2010, according to a 2012 report from the Institute for Energy Research. That’s compared with 64 cents in subsidies for natural gas and $3.14 for nuclear power.
The program operates as one of America’s least-known wealth-redistribution schemes, forcing taxpayers to pick up the tab for wind farms beyond their borders. In 2012 more than 30 states paid more in subsidies than wind farms in those states received in tax credits. Citizens in five states paid more than $100 million more in federal taxes than they received from the PTC: California ($196 million), New York ($163 million), Florida ($138 million), New Jersey ($126 million) and Ohio ($104 million). Eleven states paid into the PTC even though they have no qualifying wind production. The unlucky losers included Florida, Virginia and North Carolina.
The credit also encourages abuse—both of the electricity grid and the taxpayer. Instead of paying wind producers based on how much of their electricity is used, the PTC pays them based on how much electricity they generate. Companies that invest in wind power thus receive tax credits to produce something that consumers may not actually want. In fact, producers often pay electricity-grid operators to take their product. This phenomenon is known as “negative pricing.”
Wall Street has figured out that it can use this system to its advantage. The PTC offers major corporations a chance to lower their tax rates by investing in wind energy. But investors also realize that wind farms make little financial sense if the taxpayer isn’t picking up the tab.
Wind power’s fluctuating growth patterns bear this out. In 1992 wind installations produced about 2.8 million megawatt hours of electricity; in 2013 wind installations produced 167.6 million megawatt hours. Yet when the PTC expired temporarily in 2000, wind installations plummeted 92% the next year. The same thing happened in 2002 and 2004, when new installations fell 76% after two temporary expirations.
But the past few years deserve special mention. For most of 2012, wind producers weren’t sure if the PTC would be renewed at the end of the year. As a result, producers didn’t break ground on new projects, with only 1,100 new megawatts brought online the following year—a more than 90% drop.
Yet Congress caved and gave the PTC a one-year extension in January 2013, throwing in a bonus: Wind projects under construction by the end of the year would still be eligible for the PTC, even if they wouldn’t come online until after the credit expired.
Corporations and wind producers promptly rushed to cash in the taxpayer’s generosity. The industry broke ground on 12,000 megawatts of new wind farms before the PTC finally expired on Dec. 31. Thanks to the credit’s 10-year payout guarantee, taxpayers still have another decade of subsidizing wind.
It would be a mistake for Congress to renew the PTC again, and it is time to let the wind industry compete with other energy industries in a fair market. Congress should ignore the hot air surrounding the PTC and let it flutter away forever.
Mr. Phillips is the president of Americans for Prosperity.
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