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Analysis of production tax credit impact
1 December 2007
Estimates of by how much a long term extension of the federal production tax credit (PTC) would boost wind power's role in US electricity supply vary widely. The US Energy Information Administration's 2007 Annual Energy Outlook says that a five year extension, beyond the credit's current expiration at the end of next year, would increase wind generation by 40% in 2030. A permanent extension, it went on to say, would more than triple wind generation by the same date, enough to serve roughly 3% of the country's electricity supply. In contrast, the Department of Energy's National Renewable Energy Laboratory estimates that an extension of the PTC through 2020 could stimulate enough wind power to provide up to 17% of national electricity supply by 2030. The divergence of opinion, according to a new report by researchers at the University of California's Lawrence Berkeley National Laboratory, is attributable to differences in model assumptions. The report, Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States, also points to research showing that a long term PTC extension could drive the installed cost of wind down by between 5% and 15%, compared to the current pattern of one and two year extensions. "Savings were estimated to come, in part, from delinking US wind turbine prices from the euro-dollar exchange rate and reducing transportation costs as local manufacturing becomes more prevalent," it says. The capital cost premium of the boom and bust cycle caused by the on-again, off-again PTC could be up to 12% according to recent analysis, adds the report. It estimates the total cost of the PTC at $850 million in 2007, increasing to a maximum of $1.4 billion in 2009. The Joint Committee on Taxation in the US Congress has estimated that a four year extension of the credit, as proposed in the energy bill passed by the House of Representatives in August, would reduce revenue to the Treasury by $6.6 billion over the duration of the PTC. The Senate and White House must still approve that extension before it can become law. In contrast, says the Lawrence Berkley report, the overall bill for federal energy subsidies was estimated at $75 billion in 2006.
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