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Wind and Solar Tax Credits: Special Interest Subsidies

The House Ways and Means Committee on November 19th released a draft of its “Growing Renewable Energy and Efficiency Now (GREEN) Act” (summary). The sponsors propose to extend, increase, and create tax credits for various non-fossil energy-related technologies, such as electric vehicles, wind turbines, and solar panels. They are expected to push for inclusion of the credits in whatever spending package Congress passes and sends to the President by December 20th—the deadline for avoiding a pre-Christmas government shutdown.

Sponsors of the GREEN Act claim the wind production tax credit (PTC) and solar investment tax credit (ITC) are pro-consumer because those policies increase the supply of electricity generated from “free” fuels (i.e., photons and wind currents). But tax credits are not free. They increase the federal deficit and national debt, which must eventually be paid by taxpayers.

Moreover, the overwhelming lion’s share of the value of the credits goes to wind and solar investors, banks, and utilities, not consumers. Or so we may infer from a new Lawrence Berkeley National Laboratory study titled Impact of Wind, Solar, and Other Factors on Wholesale Power Prices.

The authors examined hourly wholesale prices at more than 60,000 pricing nodes during 2008-2017 to estimate the impacts of wind, solar, and other factors. They found that in most markets, the “growth in wind and solar reduced average wholesale prices by less than $1.3/MWh.” Yet during that period, taxpayers funded the PTC at $23/MWh (raised to $25/MWh in 2019). Thus, approximately 95 percent of the benefits of the wind PTC went directly to wind power companies, utilities, and financiers, while only about 5 percent of the benefits went to ratepayers.

Converting the ITC into a dollars per megawatt-hour subsidy is tricky, because the credit is for investment rather than output. A tech-savvy colleague estimates the ITC subsidizes solar power at $35/MWh, which implies that even more than 95 percent of the money ended up in the hands of a favored few.

The Berkeley Lab study also finds that falling natural gas prices during 2008-2018 “were the dominant driver of average market-wide wholesale prices, reducing average annual wholesale prices by $7–$53/MWh.” In other words, un-subsidized natural gas reduced wholesale prices by much more than lavishly subsidized solar and wind.