United States

United States

Energy subsidies compared

The cost of supporting wind power in the US is rapidly escalating as new wind farms pour online, but the $0.019/kWh production tax credit (PTC) available to wind investors is dwarfed by other incentives flowing to mainstream energy sources, reports the American Wind Energy Association (AWEA). It has produced a fact sheet tracking energy subsidies provided by the US government during fiscal year 2006, using figures from either the White House or agency budgets, says AWEA policy analyst Elizabeth Salerno.

In 2006, the US budgeted $510 million for PTC payments. While several technologies are eligible to receive the tax credit, AWEA estimates that about 80% of payments go to wind power projects. Another $39 million was budgeted for wind research and development (R&D).

In comparison, production type incentives to the fossil fuel industry totalled $1.35 billion, while its R&D budget was $870 million. Overall, subsidies to the energy sector totalled just over $6 billion. The nuclear industry received at least $1.5 billion, including $550 million for R&D. Total subsidies to the nuclear industry could actually be much higher, says Salerno, because of laws that limit its liability in case of an accident. Studies have produced a wide range of estimates of the value of that measure, says Salerno. AWEA used the most conservative. Estimates from the higher end would add about $4 billion to the nuclear total.

AWEA undertook the analysis because of questions from both wind power advocates and critics asking when the industry can do without the PTC. "Looking at wind in the vacuum of when can it function without the incentive does not necessarily make sense when all energy sources are being highly subsidised," says Salerno.

She points out that some energy incentives, like the depletion allowance for the oil and gas sector, have been around since the 1920s and, unlike the on-again, off-again PTC, are a permanent part of the tax code. "They don't have to worry every year whether it is going to be renewed or not. They can bank on it being there. That in itself has huge value," she says.

With US wind developers installing new wind capacity at a blistering pace, building a record 2431 MW in 2005 and on track to add another 3000 MW this year, there is a question of how well the budget estimates reflect what is actually being paid out to producers. Salerno believes the White House budget, which utilises figures supplied by the Treasury Department that are updated periodically as new bills are introduced, provide a good indication of cost.

But she admits it is not clear how those estimates are produced. "It kind of goes into a black box and they calculate it and spit something back out," she says. "We don't know what exactly is going into that, so it is kind of hard to tell how accurate the estimate is compared to what is being paid out. But that is the same for all incentives."

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