Pompeo: Wind production tax credit should expire


U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, and U.S. Senator Lamar Alexander contribute the following article on the harm of the wind power production tax credit (PTC). The NorthBridge Group report referenced in the article is available at Negative electricity prices and the production tax credit.

Puff, the Magic Drag on the Economy
Time to let the pernicious production tax credit for wind power blow away

By Lamar Alexander And Mike Pompeo

As Congress works to reduce spending and avert a debt crisis, lawmakers will have to decide which government projects are truly national priorities, and which are wasteful. A prime example of the latter is the production tax credit for wind power. It is set to expire on Dec. 31 — but may be extended yet again, for the seventh time.

This special provision in the tax code was first enacted in 1992 as a temporary subsidy to enable a struggling industry to become competitive. Today the provision provides a credit against taxes of $22 per megawatt hour of wind energy generated.

From 2009 to 2013, federal revenues lost to wind-power developers are estimated to be $14 billion — $6 billion from the production tax credit, plus $8 billion courtesy of an alternative-energy subsidy in the stimulus package — according to the Joint Committee on Taxation and the Treasury Department. If Congress were to extend the production tax credit, it would mean an additional $12 billion cost to taxpayers over the next 10 years.

There are many reasons to let this giveaway expire, including wind energy’s inherent unreliability and its inability to stand on its own two feet after 20 years. But one of the most compelling reasons is provided in a study released Sept. 14 by the NorthBridge Group, an energy consultancy. The study discusses a government-created economic distortion called “negative pricing.”

This is how it works. Coal- and nuclear-fired plants provide a reliable supply of electricity when the demand is high, as on a hot summer day. They generate at lower levels when the demand is low, such as at night.

But wind producers collect a tax credit for every kilowatt hour they generate, whether utilities need the electricity or not. If the wind is blowing, they keep cranking the windmills.

Why? The NorthBridge Group’s report (“Negative Electricity Prices and the Production Tax Credit”) finds that government largess is so great that wind producers can actually pay the electrical grid to take their power when demand is low and still turn a profit by collecting the credit — and they are increasingly doing so. The wind pretax subsidy is actually higher than the average price for electricity in many of the wholesale markets tracked by the Energy Information Administration.

This practice drives the price of electricity down in the short run. Wind-energy supporters say that’s a good thing. But it is hazardous to the economy’s health in the long run.

Temporarily lower energy prices driven by wind-power’s negative pricing will cripple clean-coal and nuclear-power companies. But running coal and nuclear out of business is not good for the U.S. economy. There is no way a country like this one — which uses 20% to 25% of all the electricity in the world — can operate with generators that turn only when the wind blows.

The Obama administration and other advocates of wind power argue that the subsidy provided by the tax credit allows the wind industry to sustain American jobs. But they are jobs that exist only because of the subsidy. Keeping a weak technology alive that can’t make it on its own won’t create nearly as many jobs as the private sector could create if it had the kind of low-cost, reliable, clean electricity that wind power simply can’t generate.

While the cost of renewable energy has declined over the years, it is still far more expensive than conventional sources. And even the administration’s secretary of energy, Steven Chu, calls wind “a mature technology,” which should mean it is sufficiently advanced to compete in a free market without government subsidies. If wind power cannot compete on its own after 20 years without costly special privileges, it never will.


7 responses to “Pompeo: Wind production tax credit should expire”

  1. Westider

    Rep. Pompeo deserves a lot of credit for taking on a special interest that is entrenched in Kansas, albeit in Hutchinson that is in the 1st congressional district. Suppliers to Siemens had been talking about locating in the 4th congrssional district too.

    If only there were 217 more (I can think of a few, AZ’s Flake and TX’s Paul but no where near 200, let alone a majority) in the house.

  2. Mark Richardson

    In a strict sense, Mr. Pompeo deserves credit for starting down the long road of eliminating government spending and market interference.

    However, is there an explanation why the Congressmen didn’t include all the energy tax expenditures the Joint Committee on Taxation (JCT) lists in the publication referenced in the article in his legislation seeking to end energy subsidies?

    For example, the JCT lists the Intangible Drilling Cost and Percentage Depletion oil and gas tax expenditures toward the top of page 31 on the same data table as the wind PTC. https://www.jct.gov/publications.html?func=startdown&id=3642

    And, there are others.

  3. BettySue

    The recent rise in electricity rates is directly attributed to the Gov.mandate to get 15% of our energy requirement from so-called renewable resources.(wind and solar) The information from Westar said expect more rate increases,as the mandate goes up to 20% in the near future.
    This hurts people that can least afford to pay!!
    I pray Romney gets elected,so we can use the abundant resources our country has!!

  4. BettySue

    Read yesterday the obama administration flaunted another law that said Solar panels must be purchased in the U.S.A.
    by purchasing millions(billions?) of dollars worth of solar panels from China. And of course,90+% of the blasted windmills are made in China!!!

  5. C. Frank Miller

    I am a former Kansas State Representative. While I was in office I represented Elk County that is now covered in wind mills. At the time wind power was just gettint started in Elk County, but as an engineer I have always known that wind power can never replace the need for Coal and or Nuclear power plants. Here follows a “Frank Talk” that I sent to my constituents
    Press Release 1/20/05

    “The Good and the Bad Regarding Wind Energy”
    I am receiving numerous emails and letters both for and against the development of wind energy. This is electrical energy generated by very large windmills – some as high as 400 feet – that are anchored to the ground on a large concrete base. For a commercial enterprise to be economically feasible, a significant number (into the hundreds) of windmills are usually grouped together and electrically interconnected. This grouping of windmills is then called a “wind farm.”
    As an Engineer with both theoretical and practical experience in the area of power generation, I must confess to being skeptical about the practicality of wind energy as a long-term economical and dependable source of electricity. I have done some research into this form of power generation and believe any community considering a large expansion of wind generation needs to go SLOW and make sure a majority of the residents in the area or county are in agreement.
    In most cases, the prime motivation for building “wind farms” is not environmental or energy benefits; rather it is tax breaks and incentives. This is a positive for owners of wind farms, but a negative for taxpayers that must cover the difference. I found that generally tax incentives now available to wind farm promoters and Kansas land owners is significant.
    Owners of Kansas wind farms receive four tax breaks:
    1. On the Federal level, a five-year double declining balance accelerated depreciation tax deduction.
    2. Also on the Federal level, a Production Tax Credit of $0.018 for each kWh of electricity produced during the first 10 years of operation. Note: A 100 tower farm with a rated capacity of 100 megawatts running at 30 percent capacity would generate an income in 10 years of approximately $47 million.
    3. The depreciation is applied at the State level in addition to the Federal level.
    4. The windmill equipment is exempted from property tax at both the State and Local level.
    Double declining balance simply means that the wind farm equipment loses value at a much faster rate than normal, and owners would be able to deduct from their taxable income a total of 20% in the first year, 32% in the second, 19.2% in the third, 11.2% in the ensuing two tax years, and 6.4% in the sixth year.
    Windmills are extremely large, yet produce very little electricity. If the fully operable windmills in California, Texas, Minnesota, Iowa, Washington and Oregon were to run and produce electricity, the amount produced would be equal to 1/3rd of 1% of the electricity produced in the United States in one year. This is costing a lot of money with very little return.
    Windmills are very unreliable in that they depend on wind in the right speed range. They can produce a low amount of electricity if the wind speed is 8 mph, but they reach optimum capacity at 33 mph, which is a pretty strong wind. However, the windmill will cut out around 56 mph. Because they are so unpredictable, the electricity produced from windmills is of very little value.
    The electricity produced actually costs taxpayers more than wind advocates admit. They do not factor in the cost of tax breaks that ordinary taxpayers must make up, nor do they consider the cost of providing conventional back-up power plants to balance out the power produced by windmills. Finally, they do not consider the cost of transmitting this electricity from the windmills to existing major high voltage transmission lines. Since the windmills are unpredictable, the transmission capacity is only used part of the time, resulting in a higher than normal cost for transmission.
    In addition, these wind farms impair environmental, ecological, scenic and property values, for obvious reasons. The bulk of the windmills become an eyesore in many scenic areas, may affect bird migration, and potentially would adversely impact ecological rarities such as the Flint Hills of Kansas.
    Many European countries have introduced wind energy as a source of electrical power, but Germany and Holland are both beginning to back down from it. Just last year, Holland decommissioned 90 turbines, which decreased their energy capacity for that year. Germany had to raise taxes on their wind farms, causing the smaller farms to shut down because they couldn’t afford the tariffs.
    Finally, the amount of energy produced by the windmills is not worth the tax break owners are receiving. The windmills are only expected to supply less than 1% of the energy used in Kansas. This is not cost effective.
    I would suggest that any community considering wind energy should contact and make a visit to West Texas and see the enormous impact these mills have on the topography, and talk to wind farm owners, land owners who do not have wind mills, and local and State governmental officials. I would consider arranging this kind of trip.
    To contact Rep. Frank Miller write, telephone, or email to P.O. Box 665, Independence, KS, 67301, Tel: (Home) 620-331-0281; Topeka office 785-296-7646, Email frank@frankmiller.org . Take a look at Frank’s updated webpage http://www.frankmiller.org .

  6. Mark Richardson

    Interesting comments regarding the viability of wind energy.

    The authors’ state that 10 more years of the wind PTC would cost $12 billion based on their cited JCT data apparently extrapolated to 10 years. Therefore, based on same JCT data table on page 31, the mentioned oil and gas tax expenditures would cost $18.2 billion for 10 years, utilizing their same methodology and source.

    Rep. Pompeo and Sen. Alexander seem particularly concerned with the adverse effects of wind on base generation, primarily coal and nuclear. Based on data on page 32 of their cited JCT document, the nuclear industry is estimated to receive $9.4 billion for the special tax rate for nuclear decommissioning reserve funds for 10 years.

    Same link provided previously to their cited JCT document: https://www.jct.gov/publications.html?func=startdown&id=3642

    Again, is there a suggested rationale why Congressman Pompeo did not include these oil/gas and nuclear tax expenditures, among others, in his proposed energy subsidy ending legislation, H. R. 3308?

  7. Toronto L

    I really dislike the idea that we depend only on Coal and Nuclear energy in Kansas when we have only one nuclear plant and little in the way of Coal Reserves. Does anyone see that as a problem for Kansas Workers?
    We pay our energy suppliers not only the cost of energy but also a pie in the sky “Customer Charge” “Power Cost Adjustment” and on and on and on it is NO wonder the cost for alternative energy is so high. Energy Companies get the blessings of many of our legislators and we get to pay the bill.
    Pompeo plans to cut wind & solar subsidies with NO mention of cutting the subsidies of Oil. Cut them all !! Rein in Government Spending. Government should be there to help protect the people. Currently there are many different energy rate groups for energy users and it is the Individual Household that pays the most per KWH of energy used. The Government Federal, State, Local should take a stand and help the people from all the different rate groups that put higher energy usage costs on the backs of individual households. This should be the concern of Mr. Pompeo and all other elected representatives that no one ,,,,, especially business have an advantage over individual households. Yet currently our representative allow this to happen.

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