AWEA, Exelon spar over study claiming PTC distorts power markets

Source: Hannah Northey, E&E reporter • Posted: Monday, September 17, 2012

Nuclear giant Exelon Corp. released a study today claiming production tax credits for wind generators are distorting the electricity markets.

The Exelon-sponsored report says tax production credits for wind should be allowed to expire at the end of the year because they incentivize wind generators, mainly in the Midwest and Texas, to produce electricity at a rate that harms other generators and threatens reliability.

At issue is a phenomenon that occurs in wind-rich areas, where electricity production from turbines, nuclear reactors and other generators can outweigh demand and force utilities to pay the grid operator to take their power. Such “negative pricing” can occur on windy spring and fall nights when there is little demand for heating and cooling, but the wind continues to blow and reactors steadily churn out electricity.

The report — done by the NorthBridge Group — says wind producers are not incentivized to pull back production during times of low demand; instead, the companies use the PTCs to “sell electricity at a loss to earn enormous tax subsidies.”

Thus, the report says, the tax credits, originally enacted in 1992 to jump-start the industry, are distorting the market, threatening reliability and making it more expensive for fossil generators to step in and help manage the grid, said Aaron Patterson, a principal at the NorthBridge Group and co-author of the study.

“It’s making it uneconomical for other generators, it results in reliability problems and concerns because wind doesn’t have the ability to meet peak demands that these other generators do,” Patterson said. “All the generators that don’t get this subsidy, they are less likely to want to turn their plants on in times when these “negative” prices might happen. It’s a risk for them; it’s expensive.”

Exelon is in a unique position, as the utility operates a large number of reactors and wind turbines in the Midwest.

The wind industry’s top trade group took issue with the report. The American Wind Energy Association has argued that the PTC is allowing the industry to blossom and supports 75,000 jobs, with 37,000 immediately at stake if Congress allows the credit to expire. AWEA recently terminated Exelon’s membership (Greenwire, Sept. 10).

The wind group also contends that the “negative” pricing phenomenon is actually caused by a lack of transmission in the Midwest and Texas, and competitors are inaccurately blaming wind generators.

Michael Goggin, AWEA’s manager of transmission policy, said negative prices in the wholesale electricity market are rare and occur because there is not sufficient transmission. But the problem, he said, is isolated to certain regions and will be alleviated in the coming months and years as new power lines are built to connect customers to pockets of wind power in Texas and Minnesota and throughout the Midwest.

Goggin also said wind energy is inexpensive, regardless of the tax incentives, because wind power has no fuel cost and has extremely low variable costs for operation and maintenance. The PTC, he said, has very little effect on real-time electricity prices. Electricity prices have also been going “negative” for decades because nuclear reactors exceed power demand at night, he said.

“Claims that the wind energy production tax credit is causing negative prices are misguided, as negative prices are extremely rare and would occur anyway even if the [production tax credit] did not exist,” Goggin wrote in a blog post this week.

Goggin also rejected the assertion that wind generators are preventing the construction of new plants and said the economic downturn and a surge of cheap natural gas prices are to blame.

AWEA spokesman Peter Kelley said the real issue is that wind power is driving electricity prices down and consumers substantially benefit.