Wind and Solar Tax Credits

Institute for Energy Research, 3-26-2019

Key takeaways:

  • The U.S. Treasury estimates that the Production Tax Credit will cost taxpayers $40.12 billion from 2018 to 2027, making it the most expensive energy subsidy under current tax law.
  • These tax credits fundamentally distort markets and strain the grid in ways that are economically unsustainable.
  • Backup costs (i.e. the costs of maintaining backup electricity 24/7 to compensate for wind and solar’s intermittency) are not included in estimations of the cost of wind and solar power, leading to gross underestimation of the costs of these energy sources.
  • While fossil fuel prices have been declining and electricity demand has been relatively flat, electricity prices have increased by 56 percent between 2000 and 2018, with the largest increases coming from many of the states that promoted the establishment of wind and solar energy through state subsidies and mandates for their production.
  • In 1992, Congress passed The Energy Policy Act that established the Production Tax Credit (PTC) for wind energy, providing a tax credit of 2.3 cents per kilowatt hour[2] of wind energy produced for the next 10 years of the facility’s operation.
  • The Investment Tax Credit (ITC) for solar energy provides a 30 percent tax credit[3] on the investment of a qualifying solar facility. Meaning, taxpayers literally purchase 30 percent of every solar array on roofs or in industrial solar farms.
  • Because 80 percent of our solar panels originate overseas, U.S. taxpayers are contributing 24 percent of the cost going overseas.
  • The wind PTC can actually cause wholesale generating prices to drop below zero and compel other technologies to accept those prices. Unlike the stable and predictable price of electricity at the retail level, market prices for wholesale electricity can fluctuate widely throughout the day—usually referred to as on-peak and off-peak prices—and across seasons. For example, wholesale prices tend to range between $30 and $50 per megawatt-hour but can drop into the negative range or spike[7] well above $500 per megawatt-hour.
  • A fundamental flaw in this logic in that wind and solar energy are intermittent technologies, generating power only when the wind is blowing and the sun is shining. The backup costs are not attached to the cost of wind or solar power that most organizations report, nor are they attributed to the wind or solar producer. This effectively “bends” the grading curve for metrics such as the “levelized cost of electricity.”