The Multiple Distortions of Wind Subsidies

January 8, 2013

The wind industry receives lavish subsidies from the federal government. But this distorts the market and prevents even competition among different energy sources. Subsidies waste taxpayer money, subvert the allocation of capital, and generate a social cost many times the price tag of the subsidies themselves, says Phil Gramm, a former senator and visiting scholar at the American Enterprise Institute.

  • According to the U.S. Energy Information Administration, wind subsidies cost $52.48 per one million watt hours generated.
  • In contrast, the same amount of electricity from nuclear power costs $3.10.
  • Hydropower only costs 84 cents and natural gas costs only 63 cents.

There are also many indirect subsidies that the wind industry receives from the government. For example, the government mandates that federal agencies use renewable energy. In addition, many states provide more tax breaks and mandates for wind power. The total amount of direct and indirect assistance has never been truly measured or calculated.

The government's insistence on wind energy distorts the market and displaces other sources of energy that would otherwise be cheaper. But since wind is so subsidized, many utility companies end up using wind power. Rather than using taxpayer money more effectively, the government subsidizes a non-competitive industry.

On top of that, wind power is highly inefficient and has a high failure rate. Considering that the electricity is generated only when the wind blows, the risk that wind won't be able to produce sufficient power is high. For example, when peak demand for electricity occurred in Chicago this past summer, wind energy, which made up 2,700 megawatts of capacity, only supplied four megawatts of electricity -- a 99.8 percent failure rate.

As a result, many power grids that utilize wind energy have to maintain backup generating capacity, which ends up being costlier. On top of that, much of the backup electricity is comprised of coal and natural gas, energy sources that are deemed environmentally unfriendly.

Despite years of research and money into wind power, there has been little to no technological development to make wind a more viable energy source. On the other hand, there has been significant technological development in oil and gas that has reduced prices significantly. But wind subsidies disincentivize people from investing in natural gas, an industry that could be responsible for millions of new jobs.

Source: Phil Gramm, "The Multiple Distortions of Wind Subsidies," Wall Street Journal, December 25, 2012.

 

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