The Cost of the Production Tax Credit and Renewable Energy Subsidies in Texas
Texas Public Policy Foundation
eral grants went to wind arms, the production o wind tur-bine components, or to help exas deal with the increasedamount o wind power on the electrical grid.
Despite the mature nature o the wind industry, the cost o renewable subsidies in exas has increased. I the PC iscontinued, the 10 year cost o renewable subsidies in exasshould total about $12.9 billion, an average cost o $1.29 bil-lion a year over the period.
The PTC and Resource Adequacy in Texas
Te cost o these direct subsidies, however, is only a portiono the total eect o renewable energy subsidies in exas.Additionally, one must consider the costs imposed on theexas electricity market.It is well known that exas is undergoing a major debate overwhether price signals are adequate to maintain resource ad-equacy; less well known is that a signicant portion o theproblem with price signals can be laid directly on the door-step o subsidies or wind generation.Te PC allows wind generators to bid electricity into themarket at negative prices. In other words, generators canuse proceeds rom the PC to pay people to take electricity rom them and still make a prot. When wind-generatedelectricity is bid into the market at a negative price, all othersources o generation must match that price or risk gettingknocked o the grid. Tis decreases the protability o non-wind generation and gives companies ewer resources andincentives to invest in new capacity. Over time, this willserve to degrade the reliability o the exas grid, increasingthe risk o blackouts.Donna Nelson, chairman o the Public Utility Commissiono exas (PUC) urther explains this:Federal incentives or renewable energy … have distortedthe competitive wholesale market in ERCO. Wind hasbeen supported by a ederal production tax credit thatprovides $22 per MWh o energy generated by a windresource. With this substantial incentive, wind resourcescan actually bid negative prices into the market and stillmake a prot. We’ve seen a number o days with a nega-tive clearing price in the west zone o ERCO where mosto the wind resources are installed. … Te market distor-tions caused by renewable energy incentives are one o theprimary causes I believe o our current resource adequacy issue… his distortion makes it difcult or other gen-eration types to recover their cost and discourages invest-ment in new generation.
YearRenewable Energy Credits Production Tax Credit CREZ Costs Stimulus
Retired Cost Wind MWh Cost To Date/Future Costs2006 4,200,975 $18,904,388 6,341,451$126,829,0202007 5,025,934 $22,616,703 8,732,934$174,658,6882008 13,618,248 $61,282,116 15,237,876$304,757,5292009 15,908,404 $47,725,212 18,522,660$377,862,256 $482,286,8592010 20,984,518 $57,707,425 26,225,695$545,704,266 $381,372,4352011 24,372,369 $67,024,015 27,146,390$597,220,589 $766,210,1702012 25,227,839 $69,376,558 25,802,010$567,644,211 $2,462,064,014 $21,585,3052013 26,113,336 $71,811,675 24,385,082$536,471,800 $4,094,058,0322014 27,029,914 $74,332,265 22,233,904$489,145,8922015 27,978,664 $76,941,327 19,037,276$418,820,077
Total 190,460,202 $567,721,682 193,665,279$4,139,114,328 $6,556,122,046 $1,651,454,769
Ten Year Cost of Renewable Subsidies in Texas: 2006-2015*Total: $12.91 billion
Sources: ERCOT; U.S. Department of Energy; and calculations by the authors
* CREZ costs listed in 2012 represent all costs incurred rom inception through the July CREZ Progress Report No. 8. Those listed in 2013represent all uture costs scheduled to be incurred ater the July report. We attribute 95 percent o CREZ cost to wind, to allow or somegeneral beneft rom the CREZ lines through reduced congestion on the grid. Wind MWhs is an estimate o wind generation eligible orthe PTC.