Editorial

The diseconomy of the production tax credit

Proponents of wind energy insist that adding renewable energy to the grid reduces the market price of electricity by displacing resources with substantially higher operating (fuel) costs. Various studies have been performed that model the "price suppression" effect of wind and solar on ratepayer bills, however, assessing the actual impacts of an operating project on rates has proven more elusive.

But we may have an idea of the price benefit based on the recent announcement from Iowa.

Billionaire Warren Buffett's MidAmerican Energy has proposed a massive 1,050 megawatt wind power facility that will span five different counties in the state, dwarfing any of the existing wind facilities operated by the company. Construction is slated to begin this year to ensure availability of the federal production tax credit ($0.023/KWh) and the project is expected to go into service by 2015.

MidAmerican President William Fehrman touted that the project would provide nearly 40 percent of the energy consumed by his Iowa utility customers and offer a "slight decrease" in their monthly electric bills. How much of a decrease? This month, it was reported that the project would provide an overall rate reduction of $10 million per year by 2017.

With MidAmerican having total sales in the state of 29.5 million megawatt hours per year, and assuming an average household consumption of 1 MWh per month, the project would save ratepayers a mere $0.34 per month on their monthly electricity bills --  about $4.00 per year ($10 million / 29.5 million MWh). 

These savings might make Senator Chuck Grassley (R-IA) smile, but Mr. Buffett and MidAmerican will be laughing all the way to the bank.

When the numbers are examined within a national context, the economics fall apart.

Warren Buffett's 1,050 megawatt project, operating at a 30% annual capacity factor, would receive $63.5 million per year in public benefit via the production tax credit for the first ten years of operation, a six-fold increase over the potential rate savings. At a 35% capacity factor, the PTC benefit swells to $74.0 million per year (see table below).

Even if we assume the project continues to operate for another ten years after its PTC eligibility expires, the ratepayer savings will only reach $200 million while U.S. taxpayers will have doled out more than 3-times that amount. Apparently, the large rate saving promised by wind proponents is more a figment of a modeler's assumptions.

It's no wonder MidAmerican is racing to start construction this year to qualify for the PTC -- and why big wind is clamoring for the PTC to be extended. It's time for U.S. taxpayers to demand an accounting of the benefit they receive for the billions expended on wind.

OCT 10 2013
http://www.windaction.org/posts/38754-the-diseconomy-of-the-production-tax-credit
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