Gone with the wind

The following article appears in the Spring 2013 issue of "Regulation", a quarterly publication from the Cato Institute.

The High Cost of Low-Value Wind Power

Subsidized wind generates the least amount of power when it is most needed.
By Jonathan A. Lesser

The entire article can be found here:

http://www.cato.org/sites/cato.org/files/serials/files/regulation/2013/3/v36n1-8.pdf

The conclusions are as follows:

Continued subsidies for wind generation, both in the form of tax credits and mandatory renewable portfolio standards (RPS), represent bad economics and bad energy policy, for at least three reasons.

First and foremost, wind generation’s production pattern is not only volatile and unpredictable, it also has low economic value. Rather than displacing high variable-cost fossil generating resources used to meet peak demand, wind generation’s availability peaks when electricity demand is lowest. As a result, wind generation tends to displace low variable cost generation or simply forces baseload generators to pay greater amounts to inject power onto the grid because the units cannot be turned off and on cost-effectively. Thus, consumers and taxpayers are forced to subsidize low-value electricity.

Second, subsidized wind generation, like all subsidies, distorts electricity markets by artificially lowering electricity prices in the short run, but leads to higher prices in the long run. This imposes economic harm on competitive generators and consumers. Subsidies drive out competitors and increase financial uncertainty, thus raising the cost of capital for new investment in generation. In the long run, the impact of subsidies is electricity prices that are higher than what would prevail in a fully competitive market.

Third, subsidized wind generation results in additional social costs that are borne by consumers. Those costs include billions of dollars that must be spend on additional high-voltage transmission lines, which have their own adverse societal impacts, as well as additional costs that are incurred to integrate variable and intermittent wind generation onto the grid. In other words, wind generation imposes external costs on other market participants.

After 35 years of direct and indirect subsidies, there is no economic rationale for continued subsidization of wind generation. At the federal level, direct subsidies such as the federal production tax credit (PTC) should be ended immediately. Similarly, state-level subsidies, whether feed-in tariffs established by state regulators or statutory renewable portfolio standards (RPS) mandates, exacerbate market distortions and raise electricity prices, again to the detriment of consumers. These state subsidies should also be eliminated. Ultimately, continued subsidization of wind generation simply rewards a few niche generation companies and their suppliers, at the expense of the many. Given the massive federal debt and anemic U.S. economic recovery, this type of pernicious wealth redistribution cannot be justified.