The wind industry may be feeling butterflies as the sector’s Production Tax Credit (PTC) is up for renewal again. But Washington’s usual handout to keep the turbines spinning may be harder to win this time round because of a new twist: experts are warning a renewal will lead to increased carbon emissions.
According to said experts, PTC subsidies for wind are incentives for turbine operators to sell energy at negative prices or a loss. That’s because wind producers still receive positive margins during negative price hours due to the PTC subsidy. So while they can readily turn wind turbines on and off, they are more than happy to keep generating, even if the grid doesn’t need them.
The problem isn’t just that this distorts wholesale electricity markets. It also crowds out other low-carbon generation sources, particularly nuclear. Already, we are seeing some nuke plants close prematurely due to budget concerns. The resulting removal of low-carbon, baseload sources from the market equals a huge increase in carbon emissions.
It is a perfect example of the rule of unintended consequences at work.
According to a UBS Investment Research study published late last year and its 2014 Outlook prepared for PJM, this “negative pricing” is most common in regions like West Texas and the Midwest. Negative prices for wind rose up to 16 percent of all generating hours in 2011.
For those who say this problem is more a product of rock-bottom natural gas prices than the PTC, I say think again. Wind tends to be nocturnal, blowing during off-peak hours for power consumption, according to UBS and a 2012 Northbridge study. It’s when people least need the power, yet that’s just when the taxpayers are being hit in the pocket. Natural gas plants are not setting wholesale prices in the dead of night, but the wind turbines keep spinning.
So how does all of this connect to going backwards on climate change? Easy. This PTC problem causes the erosion of our existing nuclear fleet, the low-carbon workhorse. As I mentioned, nuke plants are shutting down prematurely — Vermont Yankee in Vermont and Kewaunee in Wisconsin to name two — and more are in danger of following suit. When that happens, climate scientists say, carbon emissions will skyrocket.
Starting and stopping our thermal plants to accommodate these windy splurges also causes big increases in all contaminant emissions, including carbon. Just as the fuel economy in your car worsens when you’re inching along in traffic rather than cruising at a steady 55 MPH, the so-called ‘cycling’ of gas and coal-fired plants burns up more feedstock, pouring CO2 into the atmosphere. In fact, Bentek, a Colorado energy analytics firm, found that the 1,327 cycling incidents in the state in 2009 created up to 6.8 million pounds of ‘extra’ SO2, 3.1 million pounds of NOX and 147,000 pounds of CO2.
Further, in February it was reported that the Department of Energy was reviewing a scenario in which one-third of our existing nuclear fleet would be shuttered. A March 2014 study by Third Way — a think tank that advances moderate policy and political ideas — puts hard numbers on the ‘tragic and dire’ consequences of such a decision in terms of carbon emissions, saying, “Shutting down a third of the U.S. nuclear fleet would raise electric sector carbon dioxide emissions 8.0%... twice the single-year effect that Germany experienced when it shuttered 40% of its nuclear plants in 2011.”
The reason we are hearing about this now is that the PTC has fueled a flood of taxpayer-funded megawatts onto the grid that, because of the subsidies, can undercut the other traditional generating sources. According to the Electric Reliability Council of Texas (ERCOT) alone, the growth in subsidy-generated wind has been 282 percent in just seven years, and another 577 percent growth is expected to undercut other generating sources by 2016.
Notwithstanding the unintended consequences of the PTC in unleashing a chain of events that could catalyze climate change, the experts are also warning us that the PTC is a costly and inefficient way to fight carbon emissions. The last PTC renewal in 2012 cost American taxpayers over $12 billion, and the National Research Council of the National Academy of Sciences has labeled the PTC — in terms of carbon emissions reductions — as a tiny bang for a huge buck.
So here’s some food for thought as Congress contemplates another free ride for our wind turbines: the PTC subsidy is a wolf in a lamb’s clothing. It looks like support for a noble and green cause, but it’s actually a recipe for the opposite. I, for one, hope our elected representatives heed this warning.
Mike Krancer previously served as secretary of the Pennsylvania Department of Environmental Protection.