Production tax credits for wind are creating distortions in power markets, and after 20 years of subsidies it may be time to let the credits expire, experts told an Energy Policy Forum in Washington June 5.

“We are not anti-wind,” said Mayo Shattuck, Executive Chairman, Exelon Corp. “But there comes a time when we need free-market price signals,” so businesses can make decisions on investments for the next 20 to 60 years.

The wind production tax credit, now at 2.2 cents per kilowatt-hour, is due to expire Dec. 31. The American Wind Energy Association has been organizing support to extend it for at least four years, since the solar industry’s investment credit already is valid for that long.

Level the Playing Field?

Interior Secretary Ken Salazar told the forum, sponsored by George Washington University and Arent Fox LLP, that extension is supported by a wide range of business and advocacy groups, including the Chamber of Commerce to environmentalists. He said the wind credit should be one thing the divided Congress can agree to.

Shattuck said wind turbines tend to generate the most power when it’s least needed, but the federal subsidies allow operators to bid the power into grid markets at a price of zero, undercutting all other generation. As a result, he said, nuclear operators, whose plants can’t cycle easily, end up paying the grid to take their power.

Exelon is the largest nuclear operator in the US, with 24 reactors.

Moreover, Shattuck said, the tax credits are not needed to get more wind and solar built. State renewable standards are mandating the technologies regardless of federal tax policy, and utilities like his must and will continue to seek renewable resources, no matter what happens on the federal level.

the results are pretty awful economically.” – Richard Pierce

But continued subsidies will lead to premature nuclear plant retirements and ultimately to a poor and costly mix of generating resources, Shattuck told Breaking Energy. “Over time, the all-in cost will have to be accounted for,” for all sources, he said.

“The economics stink,” summarized Richard Pierce, a law professor and federal regulatory expert at GWU. He said global warming is indeed ongoing, but some European countries have heavily subsidized wind only to discover that “the results are pretty awful economically.”

Clean Break or Gradual Transition

He said planned multi-year phase-outs of subsidies “never work,” as advocates come back to Congress for more, so a decision should be made to simply end them.

Shattuck said he’d support a planned phase-out over several years if he believed the deal would stick, but like Pierce was skeptical.

Jason Grumet, President of the Bipartisan Policy Center, said there are approaches between simple extensions and cold turkey cutoffs, such as grid operators holding auctions specifically for renewable power.

Grumet said the whole tax code should be overhauled to adapt to the new US energy picture, in which an abundance of natural gas has replaced fears of energy scarcity in just five years. Legislators need to rationalize any energy subsidies longer-term, he said, adding, “We need to avoid this year-to-year lobby fest.”

“We’ve got to transition away from subsidies at some point,” said Shattuck, and get consistent and undistorted price signals for generating decisions.