What is The Cost of Subsidies?

By Larry V. Thomas

Senate Bill 16 (SB16), proposing to repeal West Virginia Code Section §11-6A-5a has been introduced in the legislature and is making its way through the House, Energy, Industry and Mining Committee. SB16 proposes to repeal the statute that sets up a salvage value tax benefit to owners of industrial wind turbines used in industrial wind energy projects.  It costs the state about $8,000,000 in annual revenue because the industrial wind turbine units are not assessed and taxed at rates of other similar property.  SB16 proposes to entirely repeal the statute so owners of turbines would be taxed on the assessed value of the turbines.

Obviously, the industry is against the proposal, although they have not identified other revenue-producing benefits of having the industrial wind turbines on property in West Virginia since the power generation is primarily for other states, and the renewable energy credit certificates the companies receive for the turbines are used for other states, or sold for profit.

What is particularly concerning is the now cumulative impact to West Virginia taxpayers, provided since July 2007 to industrial wind energy projects, of reducing the taxation of industrial wind turbines in accordance with the provisions of §11-6A-5a.

While public policy has helped the emerging renewables market, there is a growing realization, all over the world, that subsidies have outlived their usefulness and may be harmful in their current form. The industrial wind industry insists subsidies are an effective tool to keep electricity rates low. In fact, it is nothing more than a cost imposed on all taxpayers in order to accommodate development of a politically well-connected, high-priced, low-value resource that cannot meet our electric capacity needs.

Subsidies are often credited for most of the growth in the industrial wind energy sector but attributing market activity to subsidies is overly simplistic and fails to consider other crucial factors driving development. When evaluated against key economic and environment criteria, the cost of the subsidies have proven excessive and the benefits to West Virginia taxpayers minimal and even nonexistent. If subsidies were to expire, the economics of the industrial wind energy industry would shift to States with renewable mandates. Power markets will ultimately confront the real cost of industrial wind energy, and price it accordingly. The overall impact on the industrial wind energy industry would be far less severe than proponents claim.

After over 24 years of the Federal Production Tax Credit (PTC) and various state subsidies, the arguments supporting industrial wind energy subsidies no longer make sense.

High Cost: Since adopted in 1992, the cost of the PTC for industrial wind energy has ballooned from $5 million/year in 1998 to over $1.5 billion annually today. In many regions of the country the PTC now equals, or is greater than, the wholesale price of power. Even if the PTC were to sunset, taxpayers are still obligated to cover nearly $10 billion in tax credits for wind projects built in the last decade. This is in addition to the $15 billion debt for wind projects eligible under Section 1603 grants.

Here’s the math. In 2016, according to the New York Independent System Operator, the average wholesale price of electricity in the state was $34.28 per megawatt-hour. NYSERDA, which gets most of its funding from surcharges added to New Yorkers’ electric bills, will pay $24.24 per megawatt-hour for the electricity produced by two new wind projects being built by NextEra and Invenergy.

The federal production tax credit is worth $23 per megawatt-hour. The total of those two subsidies: $47.24 per megawatt-hour.

That means the wind subsidies will exceed the 2016 average wholesale price of power in New York by $12.96.

The industrial wind energy industry is a mature industry; No need for subsidies – The industry is no longer an infant industry, but a mature one. As of June 30, 2015, 67,870 MW of wind were operating in the U.S. There is no need for further subsidies.


Subsidies are skewing energy markets – Industrial wind energy demands significant revenue streams from sources outside of the energy market (i.e. the PTC and RECs), enabling project owners to undercut competition in wholesale markets by artificially driving down the price of energy. This predatory pricing, which harms the economics of our reliable generators, is directly tied to government subsidies. There is no justification for a government program that harms otherwise healthy, competitive businesses.

Other factors advancing wind development: The industry insists it’s at risk of a slow-down without subsidies. This view ignores other crucial factors driving development including state mandates and natural gas prices. It is not possible given available data to identify the extent to which subsidies have contributed to growth in the sector. In fact, demand for electricity produced by industrial wind energy facilities has eroded recently due, in part, to states meeting their renewable mandates. Lower natural gas prices further reduced industrial wind’s attractiveness as a ‘fuel saver’.

Job losses: Most of the jobs are temporary construction positions requiring peak levels of development year-after-year to maintain current levels. Attempts to attribute job creation to subsidies must be tempered with corresponding job losses due to higher renewable energy prices.

Environmental benefits: Industrial wind energy is an unpredictable, variable resource that cannot be relied on to serve load. Its primary benefit is in reducing U.S. electric carbon emissions. Subsidies are high-priced vehicles for very questionable reductions of CO2 emissions.

Conclusion: The key question is whether the benefits of subsidies for industrial wind energy are worth the cost. 24-year old subsidies are expensive, inefficient, have failed to produce net-job increases that are sustainable, and the cost applied per ton of CO2 is more than the market price of carbon. The U.S. power market has undergone significant change since subsidies were first adopted, including deregulation. It is not possible to isolate the extent to which subsidies contribute to the industrial wind sector growth. Without the subsidies, project economics would shift to states with RPS policies. The value of renewable credits might rise in response, but power markets will ultimately confront the real cost of wind energy, and price it accordingly.