Thanks to generous tax breaks for wind and solar power, renewable energy producers are reaping huge profits. But the subsidies come at the expense of taxpayers, and they’re pushing conventional power plants into premature retirement, which is threatening the reliability of the electric system.
To a large extent, the amount of coal, natural gas and nuclear generating capacity that might shut down in the next few years depends on whether Congress recognizes – and addresses – the serious stresses undermining the U.S. electricity industry.
And the extent to which Congress addresses these issues depends, in large part, on its willingness to end tax credits for wind and solar power.
This would have been unthinkable ten years ago when renewables were struggling for market share, but today wind and solar power are mature technologies that no longer require subsidies.
Currently, wind supplies about 20% of the electricity in Nebraska and as much if not more electricity in Texas, Iowa, Kansas, Oklahoma and some other states.
Due to advances in wind technology and improved manufacturing processes for turbines, the cost of wind power has fallen dramatically since 2010.
According to the financial firm Lazard, wind power’s levelized cost at the lower end in 2019 was $28 per megawatt-hour. By contrast, the cost of combined-cycle natural gas was $44 per megawatt-hour; coal, $66; and nuclear, $118.
Subsidies definitely reduce wind and solar costs. The Energy Policy Act of 1992 created what is known as the Production Tax Credit, which gives 2.1 cents for every kilowatt-hour of electricity produced by a wind turbine during the first ten years of operation. The cost of the Production Tax Credit is expected to reach more than $65 billion before its scheduled phase out in 2029.
Thanks to such subsidies, the situation in Texas has deteriorated so far that on some days the price of wind power falls so low that generators have an incentive to offer their power at any price above zero. Hence, generators sometimes respond by offering negative prices – effectively offering to pay customers to take their power for next to nothing.
Like wind, utility-scale solar power benefits from a generous tax break. The Investment Tax Credit for solar power reduces tax revenue by billions of dollars each year. Solar’s low cost has caused a number of coal, gas and nuclear plants to close before it is economic for them to do so.
Wind and solar power increase the costs of conventional generation. This is because electric power systems need conventional generating technologies to back up and fill in for intermittent renewables, which aren’t of much use when the wind isn’t blowing and the sun isn’t shining.
A combination of energy sources – coal, natural gas, nuclear, and renewables – is the core strength of the electric power system. It serves as a hedge against price volatility and supply disruptions. But this fuel and technological diversity is at risk. Left unaddressed, it could produce power shortages. The best way to deal with it is for Congress to end subsidies for wind and solar power.
Barry Butterfield, of Omaha, is a retired engineer and member emeritus of the American Nuclear Society.
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