Tax Breaks Power Wind Energy


I was reading through the winter issue of Issues in Science and Technology when I came across an article on "Accelerating the Pace of Energy Change" by Energy Undersecretary for Science Steven Koonin and DOE Senior Advisor Avi Gopstein (subscription required). One of the conundrums I've been mulling over lately is why there is so little R&D investment in the energy sector compared to other technology sectors. Energy R&D is just 0.3 percent of domestic sales while other sectors like communications is 25 percent, pharma at 12 percent, and the all industry average is about 3 percent of domestic sales.

I haven't come to a settled opinion yet, but I suspect that it has something to do with the fact that energy production is a commodity industry: all electrons and transport fuel molecules are pretty much alike no matter how they are produced and they are already pretty cheap. In addition, the fact that electricity sector has been tightly regulated for nearly century has also probably discouraged R&D investment. But as I say, I haven't made up my mind yet. 

In any case, I was struck by a chart included in the article which showed the effect of production tax credits on investment in wind energy facilities. Below is a chart that actually reproduces the data and adds a year to the one in the article. 

Below is an explanation of how wind production tax credits work from fierce wind power critic Glenn Schleede:

A "wind farm" owner is eligible for a Wind PTC, currently $0.021 per kilowatt-hour (kWh), for electricity produced during the 1st 10 years of operation. The new expiration date for the PTC was extended to December 31, 2012. If the illustrative $100 million project had turbines with the combined, "rated" capacity of 50 megawatts (MW) and they operated at a 30% capacity factor, the turbines would produce 131,400,000 kWh of electricity each year, the owners would receive a tax credit (a direct deduction form tax liability) of $2,759,400 per year during the first 10 years of operation, thus reducing federal income tax liability by $27,594,000 over 10 years.

The main take-away is that wind energy despite this and other considerable government largesse is still far from price competitive with conventional sources of power. A point that I made a while back in my article, "Wind Turbines Are Beautiful."