An article in the June 5 Buffalo News was titled: "Wind power execs: Tax credit needed to keep jobs." This Associated Press article reported on sentiments expressed by executives of the wind power industry at the WINDPOWER 2012 Conference and Exhibition that was held in Atlanta in June.
There, wind power executives extolled the importance of extending the federal Production Tax Credit (PTC) that expires at the end of this year. The PTC is a taxpayer subsidy that costs the U.S. Treasury billions of dollars each year. When something costs the Treasury, it also costs you and me as taxpayers.
Wind executives believe that uncertainty over whether the tax credits will be extended by Congress "is making it hard to keep employees on the payroll and plan for expansion." This may be true, but it is certainly not the whole story.
As Erie County's first energy director under Erie County Executive Ned Regan, I feel a unique responsibility to articulate another view.
Tax credits are only one tool in the policy toolbox to promote a particular behavior that is deemed to be in the public interest and to help overcome barriers to market penetration by new technologies. When well-designed, tax credits have an expiration date or a "sunset" provision. This was exactly the case with federal tax credits designed to stimulate the market adoption of automobiles with hybrid propulsion systems. The designers of this federal tax credit were wise enough to provide a benchmark against which the need for the tax credit could be measured. A full federal tax credit was offered to the buyers of the first 60,000 autos produced and sold by each automobile manufacturer. As this production milestone was reached by each manufacturer, the amount of the federal tax credit ramped down and eventually declined to zero. These tax credits were not designed to be a permanent welfare system for large corporations or as a means to infuse public tax money into the pockets of private, well-heeled concerns.
Since their creation in 1992, the federal subsidies have proven so lucrative to wind developers that a legion of high-powered lobbyists has now grown up with the industry and is fighting hard to sustain their high profitability — a profitability that comes at a high cost to taxpayers.
The Energy Information Administration of the U.S. Department of Energy makes the following information available to the public in its annual publication, the latest being the Electric Power Annual 2011. This publication documents the rapid growth of industrial-scale wind-electric generation.
Several Congresses ago, the EIA responded to an April 4, 2007, request from the House Committee on Ways and Means to estimate the cost to the nation of various types of congressional extensions of the PTC. The EIA response, released in May 2007, is titled "Analysis of Alternative Extensions of the Existing Production Tax Credit for Wind Generators." Following is a direct quote from that report: "A permanent extension of the PTC would encourage more wind facilities and result in larger reductions in tax payments to the treasury. With this extension, the incremental lost revenue is projected to range from $2 billion with a permanent 1.0 cent per kilowatt-hour PTC extension to more than $20 billion with a permanent 1.9 cent per kilowatt-hour credit extension."
The current rate is 2.2 cents per kilowatt-hour and it is periodically increased to adjust for inflation. Sweet deal. It is difficult to imagine that the current requests by the wind industry to extend the PTC are driven by need. This industry has grown quickly at the expense of the taxpayer. It is time to celebrate the success of the PTC for wind and to move on to supporting other worthy energy goals such as recapturing vast amounts of energy lost in the process of making electricity.
Many taxpayers believe that the time has come for the wind industry to stand on its own two feet, and that 20 years of taxpayer support is enough.
If we must spend tax money on energy subsidies, let us redirect our efforts and our expenditure. Current policies that focus on adding generating capacity to our national electrical grid are the sound of one hand clapping. A balanced energy policy would focus heavily on the 27 quadrillion British thermal units (Btus) of energy that are rejected non-productively to the environment across the nation each year as a consequence of making electricity. This energy is lost as heat.
An example may be taken from Washington, D.C., where federal policy-makers reside: The Potomac Electric Power Co.'s Potomac River Station is a 1200 MegaWatt (MW) power plant based on heat input to the boilers by burning fossil fuel. The Potomac River Station produces 400 MW of electricity and rejects 800 MW of heat into the river and nearby environment. This situation is largely repeated across the nation with our existing fleet of thermal-steam-electric power plants. Policies aimed at capturing this currently non-productive rejected heat from the nation's existing power-plants is a goal worthy of congressional attention. It represents a terrific opportunity for economic development and a target for any future production tax credits.
According to data compiled by the EIA, the amount of energy that is currently lost just making electricity in this country is greater than the energy required to run the entire economy of Japan, or of Germany and France combined. It is greater than the energy consumed by all of Central and South America combined. It is greater than the energy consumed by the entire continent of Africa.
The time for any extension of the PTC for wind energy is past. Any future tax credits should be aimed at improving energy efficiency, perhaps starting with these massive thermal losses.