A real popular song from the 1963s was “Blowin in the Wind”. Fifty years later it is popular to blow cash in the wind. Thanks to Senators Grassley and Udall the Production Tax Credit (PTC) for wind energy has been extended through 2013. The media report this as being a one year extension but in fact the credits continue for ten years after qualifying wind farms come on stream.
The PTC is a tax credit equal to 2.2 cents per kilowatt hour ($22 per megawatt hour) of power dispatched from qualifying wind generating facilities. Sounds like a small number and a good idea to reduce carbon emissions. Grassley the Republican Senator from Iowa and Udall the Democratic Senator from Colorado love wind energy. This love is simply because the wind blows a good deal of the time in their states.
In 2012 the amount of wind power that was generated is estimated at 135 million megawatt hours or about 3.3% of US electricity generated. A success story in increased power generation when compared to a decade ago when only 10.3 million megawatt hours of wind energy was generated. Part of the increased usage of wind came about by improvements made to wind turbines and the lowering of the cost of power generation from this renewable source. Part of the increase is attributable to the PTC given to owners of wind farms.
The problem of the PTC is that of the cost and the main stream media has not accurately reported on the ongoing cost of the program as it is not a one-time cost. The New York Times placed the cost of the PTC at $1 billion a year but in fact it is more like $2.75 billion a year which is the $22 per megawatt hour times the 125 million megawatt hours of generation that resulted from wind turbines placed into service over the past decade.
The other problem with the PTC is that the $2.75 billion yearly cost exceeds all the wages of the workers employed in the wind industry. Senator Udall is quoted as saying that the wind industry employs 60,000 people in the USA. The average yearly wage for a factory worker is approximately $40,000. The annual payroll for workers in the wind industry is therefore only $2.4 billion. Hence we are gifting $2.75 billion to owners of wind farms who only create payrolls of $2.4 billion. AOL reported only 37,000 workers are involved in the supply chain making the cost benefit ratio even worse. Warren Buffett should be up in arms about the unfairness of this. But hold onto your hats on the windy plains Warren Buffett’s MidAmerican owns wind farms.
California recently had its Cap and Trade auction and a US ton of carbon dioxide emissions was set at a value of approximately $10. If one performs the tedious math of the implicit value of the PTC per ton of avoided carbon dioxide emissions from a state of the art combined cycle power station fueled with natural gas the approximate value is approximately $100 per avoided ton of CO2 emissions. This is one of the few instances where California taxes do not exceed those imposed on all citizens of the US. The PTC should accordingly be reduced by a factor of ten to 0.22 cents per kilowatt hour. Cutting the wasteful spending on one worthless program by 90% is just the start to take the wind out of the sails of the bloated government that is all pumped up now post the fiscal cliff vote. The GOP better get some second wind in cutting spending or else Bob Dylan may have to sing “It ain’t me babe.” The words “go lightly from the ledge, babe” are particularly appropriate.