By Institute for Energy Research ——Bio and Archives--September 20, 2013
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Eligible renewable generators can take a 2.2 cents/kWh or $22/MWh production tax credit (PTC) on electricity sold. This means that some generators, primarily those operating wind turbines, may be willing to sell their output at negative prices to continue producing power. Typically, wind generators are the largest such group in any region.[iii]Underscoring this point, there is evidence of a positive correlation between installed wind capacity and negative pricing. The following graph from the NorthBridge Group, which examines three electricity markets from 2006 to 2011, shows that negative pricing events are happening more frequently as installed wind capacity grows: Since wind produces the greatest amount of power at low-demand times, and wind producers can pay grid operators to take their electricity because of the PTC, wind can actually create transmission congestion where it did not exist before. For example, the Congressional Research Service (CRS) noted the following in a 2012 report: “Negative power prices associated with wind power might generally occur at night when wind is producing at high levels. Large amounts of wind power generation can potentially contribute to transmission congestion and result in negatively priced wholesale power in certain locations.” [iv] In addition to transmission congestion, negative pricing caused by the wind PTC can negatively impact other energy sources like coal, nuclear, and natural gas power plants. As opposed to wind, these are reliable sources that can meet continuous energy demand. In fact, wind actually depends on so-called base load sources as back up when the wind it not blowing. Base load sources—such as coal, natural gas, and nuclear—are essential to maintaining grid reliability. The PTC creates a “biting the hand that feeds you” scenario in which artificial demand for wind driven by the PTC harms base load generation. Indeed, a 2012 article in Energy Journal finds that increasing wind generation in Texas discourages investment in natural gas, even though wind depends on natural gas as back up
…rising wind generation…can discourage natural gas-fired generation investment... Even though CCGT and CT [generation] are required to integrate large amounts of intermittent wind energy into an electric grid, there may not be sufficient investment in CCGT and CT [generation] to maintain system reliability.[v]Despite the importance of base load generation to the reliability of the electric grid, the PTC unfairly tilts the scales in favor of intermittent, unreliable wind generation that generally fails to perform when power is most needed. The resulting market distortions provide perhaps the strongest case for ending the PTC.
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