Debating wind power cost estimates – 3

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

The AWEA response to my report includes the retort, “IER is also incorrect in alleging policy support for wind energy is large or unusual.” (Link in source.)

Actually, no claim in my report suggests policy support for wind is large relative to other energy resources–I don’t discuss subsidies or policy supports for other energy sources. I didn’t intend to allege a relative subsidy size claim. But if Goggin is interested in my view, it is: Unfortunately, policy supports for politically-favored energy sources are not at all unusual, and they tend to reduce overall economic performance, and we’d be better off if we gave up on trying to direct energy markets from Washington DC.

We can’t reach back and undo all of the damage from bad energy policies of the past, but we ought to fix the energy policy we have now. And by “fix” I mean cut energy production subsidies, purchase mandates, favorable tax treatments, regulatory limits on competing energy resources, and otherwise minimize the role of political influence in the choices of energy producers and consumers.

Cut them all down: renewable subsidies, fossil-fuel subsidies, and nuclear subsidies. Sure, do something about pollution, and I’m not in principle against government-sponsored research, but various energy production subsidies and other policy supports tend to benefit a few at the expense of the rest of us.

What my report does claim is the PTC-subsidy for wind power imposes costs on non-wind participants in power markets. Without the PTC, we’d have a lot fewer wind turbines connected to the grid; the wind turbines that did get built would not bid into markets at negative prices, and with fewer wind turbines installed the resulting modest displacement of non-wind power might even be a net economic benefit.

Part of the problem is the PTC subsidizes output at the margin and so directly distorts prices and the generation mix in regional power markets. The alternative Investment Tax Credit subsidy sometimes available to wind power developers, on the other hand, is inframarginal and a bit less distorting: excessive amounts of wind are built, but ITC-subsidized wind power faces no special incentive to run at negative prices. (In economics terms, the ITC is more like a lump-sum transfer while the PTC is a per-unit production subsidy. A per-unit production subsidy is typically seen as more distortionary than a lump-sum transfer.) Generally, when wind power runs at negative prices, it suggests that non-wind baseload power plants are being pushed into a costly pattern of cycling off and back on. These cycling costs, as well as the modest wear-and-tear on the wind turbines operating when their output has negative value, are excess costs caused by the PTC subsidy.

Next: So far I’ve been responding to the introduction of the AWEA/Goggin response. The rest of the response goes into a little more detail on certain points–I’ll respond in a little more detail as seems appropriate.