Much of the debate over wind subsidies this past year has been over the extension of the wind production tax credit. But even if the subsidy expires at the end of the year (as it is supposed to), that does not mean all wind subsidies are disappearing, even though they should.
The wind industry receives subsidies in a variety of ways, the latest example being the Department of Energy’s (DOE) Advanced Technology Demonstration projects. This program is on top of the wind production tax credit, which is worth about 40 percent or more of the wholesale value of electricity—so generous, in fact, that wind producers can actually sell their energy to the grid for negative prices and still collect a profit from the taxpayers.
When selling the electricity to grid operators, wind suppliers can underbid other electricity producers in times of excess supply, because the wind producers will collect the $22 per megawatt hour generated from the tax cut.
The DOE has already awarded over $200 million as part of its Wind Program, and simply looking at the goals of the program indicates why taxpayer dollars should not be allocated to programs like this. The DOE website reads, “The DOE Wind Program is leading market analysis, technology development, and deployment projects that will overcome key barriers including the relatively high cost of energy, the mitigation of environmental impacts, the technical challenges of project installation, and grid interconnection.”
Higher costs for a technology should not be a signal for the government to step in and try to lower those costs to make the politically preferred technology competitive. By attempting to force government-developed technologies into the market, the government diminishes the role of the entrepreneur and crowds out private-sector investment. This practice of the government picking winners and losers denies energy technologies the opportunity to compete in the marketplace, which is the only proven way to develop market-viable products.
When the government attempts to drive technological commercialization, it circumvents this critical process. Thus, almost without exception, it fails in some way. This is true with renewable technology, fossil fuel technology, or technologies pushed forward by the DOE to make businesses and homes more energy efficient.
The same reasoning holds true for why Congress should not extend the wind production tax credit. An extension would perpetuate America’s addiction to energy subsidies and create technological stagnation that adversely affects the long-term competitiveness of the wind industry.
Providing another year of tax credits would be a $12 billion taxpayer-funded mistake that would further distort the electricity markets and, on net, cause economic harm by shifting labor and capital toward windmill production and away from more economically valuable investments. If the windmills add value to the economy, they won’t need the subsidy.
All of these subsidy programs continually ignore the fact that we are always going to have a demand for electricity—and we have ample supply from a variety of sources to meet that demand. The resources and technologies that can most efficiently meet that demand will all almost certainly have one thing in common: They won’t need a government program to be successful.