The Production Tax Credit (PTC), a federal renewable energy subsidy, is a $24-per-megawatt-hour credit based on energy production rather than demand. That means those who produce renewable energy can receive the credit regardless of whether or not that electricity is actually needed. The incentive is so immense that at peak hours of output wind producers can actually pay retail electric providers, the companies that deliver the energy to homes and businesses, to take their product.
This “negative pricing” scheme caused by the PTC and other subsidies is having serious consequences.The instability it causes can push out the energy producers that keep the lights on when wind is a no-show by forcing them to price their power at levels that aren’t feasible because they can’t compete with the subsidies. Without a reliable source of electricity, hot summer days in the South or cold winter days in the North could mean a loss of power.
A proposal from the U.S. Department of Energy would combat this diminished reliability by offering subsidies for coal and nuclear generators. Of course, more subsidies for one fuel to offset subsidies for another fuel are the wrong solution. It is estimated that a bailout for the coal and nuclear industries could cost consumers up to $11.8 billion per year as well as damage natural gas production which has benefited many states in recent years. The potential for subsidies, such as the PTC, to roil energy markets is clear.
In Texas, another coal-fired power plant has announced its closure—making it the fifth in the state to close or announce a closure date recently. Reliability isn’t the only cost of renewable subsidies. Recent research indicates that the PTC imposes huge costs on Americans while just 15 parent companies have received more than three-quarters of all tax credit eligibility. The report found that the subsidy has already cost taxpayers more than $20 billion since 2008, with a total cost of more than $65 billion to come before the PTC is scheduled to phase out around 2029.
Renewable energy subsidies can add costs and harm reliability across the national grid. Reliable sources of power are leaving the market while a few big corporations reap the benefits; lawmakers should take note of the policies that made it happen. Congress should ensure that the PTC expires so that electricity markets can function and Americans can all have a reliable, affordable supply of energy.