Friday, September 14, 2012

Why wind producers can pay us to take their power - and why it is a bad thing

Matthew Wald's "An Argument Over Wind" post on the NY Times Green blog today notes the NorthBridge Group study out today, commissioned by Exelon, demonstrating the impact of wind energy on market pricing: 
As a matter of both economics and public policy, no government production tax subsidy should ever be so large that it creates an incentive for a business to actually pay customers to take its product. Yet, the federal Production Tax Credit (“PTC”) for wind generation is doing just that with increasing frequency in electricity markets across the United States. In some “wind-rich” regions of the country, wind producers are paying grid operators to take their generation during periods of surplus supply. But wind producers more than make up the cost of the “negative price” payment, because they receive a $22/MWH federal production tax credit for every MWH generated.
The NY Times article primarily deals with the Production Tax Credit subsidy, but the issues appear in markets where the primary subsidy is a feed-in-tariff (the quotas of renewable energy standards too, but the PTC accompanies these in many US states)

An Argument Over Wind -
Exelon says the tax credit is distorting energy markets because the credit itself is larger than the average value of electricity produced in the Midwest. Surges of wind energy late at night during periods of low electricity demand are driving the market price of electricity below zero, according to independent statistics.
Exelon complains that in that circumstance, its nuclear plants actually have to pay grid operators to accept their electricity. The wind farms in that region do as well, but they remain profitable because they earn the production credit.
Read the full article at the New York Times Green Blog:

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