Some states pay much more than they receive in PTC funds

Some states get a net financial benefit from the production tax credit (PTC) for wind energy while others are net payers, according to a recent report from the Institute for Energy Research (IER).

IER is a non-profit research group interested in “free market energy and environmental policy.” Recent reports on the IER website are critical of former FERC Chairman Jon Wellinghoff and the Obama administration’s “slow walking” of energy permits.

The latest IER report concerns wind energy subsidies, which several members of Congress have said should be eliminated. Even some supporters expect the wind credit to be phased out.

“As this report highlights, federal wind subsidies such as the PTC provide net subsidies to wind producers in a few states, but those subsidies to wind producers come at the expense of taxpayers everywhere,” IER said.

“According to our calculations, taxpayers in 30 states and the District of Columbia paid more to the federal government in 2012 to support wind subsidies than wind producers in those states received,” IER said in the Dec. 2 report.

Of those 30 net losing states, 11 states and the District of Columbia had no wind production and received zero subsidies but still paid their share of the tax burden related to federal wind subsidies, IER said.

“California’s share of the proxy PTC tax burden is $330.8 million, while wind producers in the state received $134.9 million in proxy PTC subsidies, indicating a net payment of just under $196 million in 2012—the largest net payment we estimated. Texas, on the other hand, was the largest net taker of subsidies—wind producers took in $642.5 million in proxy PTC subsidies in 2012, while taxpayers in Texas contributed $248 million toward the related tax burden for a net transfer of $394.5 million,” IER said.

On the regional level, the Northeast and Southeast were the biggest net payers, subsidizing other areas with net losses of $591.8 million and $559.3 million, respectively. Notably, every state in the Southeast region was a net payer with respect to the proxy PTC, the IER found.

The “ultimate takers are actually the owners of wind facilities” while the “ultimate payers of the subsidies are all Americans who pay federal taxes,” the organization said.

The PTC gives generators tax credit for each kilowatt-hour of electricity generated from qualifying sites (currently 2.3 cents per KWh) for the next 10 years of operation, “regardless of real-time market signals such as negative prices that indicate that electricity is unwanted,” IER said.

Relative to the wholesale price of electricity, which hovered between 3 and 5 cents per KWh for most markets in 2012, the PTC represents “a lucrative direct subsidy” of around 50% to 75% of the wholesale price of electricity. In terms of pre-tax value, the PTC is worth approximately 3.4 to 3.7 cents per KWh, “often making the federal subsidy 100 percent as valuable to the owner of wind facilities as the market price of electricity,” IER said.

“Further, because the PTC is not tied to the wholesale price of electricity, owners of wind facilities can afford to pay the electrical grid up to 3.4 to 3.7 cents per kilowatt-hour to take their power,” the group said.

In 2012, wind installations generated 3.5% of the U.S. electricity supply. In the same year, total wind capacity increased by 13.1 GW, adding more capacity than any other generation source.

Natural gas, however, added 11 times more actual electrical generation than wind, IER said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.