A summary of costs associated with a subsidy invites attention to questions of who pays the costs and who benefits from the subsidy. It hasn’t been the purpose of this study to answer these questions, but some remarks will be useful. At a very first approximation, project owners incur the initial cost of construction and operations, the main costs captured in the widely-cited LCOE calculations. State and federal regulations and RTO market rules govern who pays the costs of transmission enhancements and power system integration needed to support wind power additions. In some cases, all consumers within a power market share these costs, while in other cases wind project owners or wind power purchasers directly pay some portion of these costs. The additional costs of excess cycling by baseload generators will initially be imposed on the owners of the baseload plants.
But these are only assessments of the initial incidence of the costs and not an assessment of the ultimate economic burden. The PTC and other subsidies and purchase mandates available to wind investors and developers mean that federal taxpayers and state electric power ratepayers also share the cost of construction and operation. The federal subsidies, for example, mean a significant proportion of the costs of meeting the requirements of the Texas RPS has been shifted to federal taxpayers outside of the state. Electric power consumers also, ultimately, pay the cost of integration and transmission enhancements needed. While the cost of excess cycling by baseload generators initially hits the owners’ bottom line, the owners will respond by raising their offer prices in capacity and energy markets. Ultimately, the owners’ shareholders and power consumers will share these costs.
Supporters of wind power and the Production Tax Credit sometimes point to wind power’s price suppression effect as a benefit of wind power. It is, of course, not surprising that subsidies directed to some power generators can lead to lower prices, but a bit of reflection undermines the idea that price suppression is good policy. So long as wind power remains more expensive than the alternatives, adding wind power cannot reduce the overall cost of power to the economy. The policy just shifts the costs of electricity from consumers to federal taxpayers. At the same time, lower prices reduce earnings to those electric power generators that do not qualify for the subsidy, which for some older and for less efficient generators may push them into earlier retirement. Lest this last report be taken as an environmental bonus, conservationists should note that subsidized electric power increases energy consumption. The mix of an increased amount of subsidized wind power and reduced amounts of non-subsidized conventional generation also raises long run reliability concerns, as Texas is beginning to realize.
So far as we were able to determine while researching these costs, no one in or out of the U.S. government has provided a systemic cost-benefit analysis of the PTC. This serious lack of analysis has been recognized by renewable policy experts, but remains unaddressed. Dr. Ryan Wiser of the Berkeley Lab testified to the Senate Finance Committee in 2007 on the many benefits expected from an extension of the PTC, but explained “these possible benefits must be judged against the costs to the Treasury … as well as the alternative uses of the funds requirement to support such an extension.” Six years have passed since this testimony to Congress, but no comprehensive assessment of the costs and benefits associated with the Production Tax Credit for wind has been produced.
Our report focuses just on the costs of wind energy, so it too is not yet the complete analysis needed to understand whether benefits of the PTC exceed or fall short of the costs of the policy. A full assessment of the PTC would require expanding the total cost calculation to the entire United States, quantifying as many of the benefits of wind power as possible, and then assessing the net benefits or net costs of the policy.