United States

United States

Report: Tax credits distorting US electricity markets

UNITED STATES: Exelon is ramping up the fight over extending the wind Production Tax Credit (PTC) with a new report that blames the tax credit for increasingly distorting America's wholesale electricity markets.

At issue, says the report, is that the PTC interacts with wholesale electricity regional markets to create "negative pricing" that undermines grid reliability, burdens tax payers and harms other electricity generators.

Negative Electricity Prices and the Production Tax Credit: why wind producers can pay us to take their power – and why that is a bad thing, by NorthBridge Group, says that negative pricing occurs when wind-energy producers earn the PTC by selling electricity at a loss to grid operators when there is surplus of electricity supply.

"The PTC undermines and distorts price signals in wholesale electricity markets by incenting PTC-subsidised wind producers to sell electricity at a loss to earn enormous tax subsidies," concluded the report, which was commissioned by Exelon.

"Wind energy remains unpredictable and cannot be relied upon, especially when needed most," added Aaron Patterson, a report co-author, in a statement.

"Lawmakers should focus on policies that do not undermine the conventional sources of generation needed to keep the lights on." 

The PTC, worth  2.2-cents per kWh for the first 10 years of a wind project’s electricity production, will lapse on December 31 unless Congress extends it.

Rob Gramlich, AWEA’s senior vice president of public policy, responded to the report by saying: "Recent reports claiming market 'distortion' are simply confirming that prices are being reduced around the country by low-cost wind energy and by additions capitalised with the help of the PTC.

"We are proud that wind is providing ever more affordable electricity.

"We thought that was a good thing. Certain existing generators clearly don’t agree."

A few days before the report came out, AWEA ejected Exelon from its membership ranks for its increasingly vociferously opposition to the PTC.

Exelon is America’s second largest electricity and natural gas company in terms of market capitalisation.

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