The U.S. wind production tax credit - evaluating its impact on wind deployment and assessing the cost of its renewal

Abstract

The desirability, viability, and cost effectiveness of policies designed to incentivize growth of the wind energy industry are subject to widespread debate within the U.S. government, wind industry groups, and the general public. Specifically, extension of the wind production tax credit (PTC) is routinely contested whenever a scheduled expiration approaches. While proponents of the policy argue that the policy is necessary for the wind energy industry to continue to expand, opponents contend that the wind energy industry no longer needs the PTC in order to remain viable. This thesis evaluates alternative wind energy incentive policies, the short- and long-term effect of the PTC on wind capacity and generation, and the ten-year projected costs and cost effectiveness associated with three PTC renewal options based on future wind capacity and generation projections. The primary lesson is that unless the wind energy industry grows at an exceptionally rapid pace over the next ten years, PTC renewal involves a tradeoff between total cost and cost effectiveness. If overall wind capacity continues to grow at an even faster pace than over the preceding ten years, allowing the PTC to expire at the end of 2013 is the cheapest and most cost effective option in terms of dollars per gigawatt of wind capacity installed or per kilowatt-hour of power generated from wind energy. If the wind industry performs at or below most current projections, renewing the PTC over the long-term is the most expensive, but most cost effective option. However, a more sustainable option could be achieved if the PTC and its frequent expirations and extensions are replaced with a long-term, predictable, and simple tax policy that is not a recurring source of uncertainty for the entire industry.