Written by Diane Benjamin - editor

The Multiple Distortions of Wind Subsidies

By PHIL GRAMM  December 25, 2012, 5:22 p.m. ET

Federal subsidies for new wind-power generation will end on Dec. 31 unless they are renewed by Congress. For the sake of our economy and the smooth operation of the energy market, Congress should let the subsidies lapse. They waste taxpayer money, subvert the allocation of capital, and generate a social cost many times the price tag of the subsides themselves.

Since 1992, the federal government has expended almost $24 billion to encourage investment in wind power through direct spending, tax breaks, R&D, loan guarantees and other federal support of electric power. The Joint Committee on Taxation estimates that a one-year extension of existing federal subsidies for wind power would cost taxpayers almost $12 billion.

The costs of wind subsidies are extraordinarily high—$52.48 per one million watt hours generated, according to the U.S. Energy Information Administration. By contrast, the subsidies for generating the same amount of electricity from nuclear power are $3.10, from hydropower 84 cents, from coal 64 cents, and from natural gas 63 cents.

In addition, wind power benefits from federal mandates requiring the use of renewable energy by federal agencies along with preferential treatment by the Bureau of Land Management and the U.S. Forest Service. Many states provide additional tax breaks, subsidies and mandates for wind power. The total value of these additional subsidies has never been calculated.

But the cost to taxpayers is only part of the problem. Subsidized, wind-generated electricity is displacing other, much cheaper sources of power. The subsidies are so high that wind-power producers can pay utilities to take the electricity they produce and still make a profit. Such “negative pricing” has occurred for some time in the Midwest, the Pacific Northwest and in Texas—and, according to the Energy Information Administration, it will likely grow.

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Bloomberg News

In West Texas, where wind power is a larger percentage of total electricity production than in any other part of the country, negative energy-price distortions have occurred 8% or more of the time for the last five years. Donna Nelson, the chairman of the Texas Public Utility Commission, warned in September that the market distortion caused by negative prices “makes it difficult for other generation types to recover their cost and discourages investment in new generation.”

The net result is that federal subsidies are triggering an inefficient and costly transformation of grid resources from low-cost megawatts to high-cost “maybe” watts—electricity generated only when the wind blows.

When electricity demand peaked in Chicago on July 6, 2012, wind energy, which comprised 2,700 megawatts of capacity, was able to supply only four megawatts of electricity, a stunning 99.8% failure rate. In Europe, one day this February wind power produced almost a third of Germany’s electricity—but four days later it produced none (it was a still day).

Power grids that rely on wind-generated electricity have to maintain redundant, backup generating capacity in case the wind isn’t blowing and the demand for electricity is high. Many of these backup sources, such as coal and gas-fired plants, have to be kept up and running to be available when they are needed—even if they are not used. This partially offsets the environmental benefits of wind power.

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