Wind Energy Subsidy in Perspective

Subtitle:  Wind Subsidy is Less Than One-Tenth of One Percent

Data from EIA for 2015

The subsidy for wind-turbine projects in the US is somewhat controversial, and has been the topic of a few articles on SLB.  This article takes the actual data for wind-turbine electricity and total electricity in the US in 2015 and puts the subsidy in perspective. 

The usual claim from the anti-wind pundits is that the US spends billions every year to subsidize an industry that is on life-support, and should be cut off from all subsidies.  

The reality is as shown in the pie-chart at the right, the average retail electricity price in the US in 2015 was 12 cents per kWh, and the wind subsidy made up 0.09 cents of that.   In percentage terms, wind subsidy is only 0.75 percent of the electric bill.   That is less than one part in one hundred; it is more like one part in 140.  

But, the US electricity market is huge, so the tiny subsidy actually does amount to approximately $4 billion in 2015.  That comes in the form of a tax credit on the federal tax bill for each of the qualifying wind-turbine owners.   Note that, if the business made no profit, there is no tax credit.  For a profitable enterprise like Berkshire Hathaway, Warren Buffet's company, the tax credits work quite well.  But, if a wind-turbine energy company breaks even or has a loss, they obtain no value from the tax credit.  Therefore, the maximum the government "paid out" would be the $4 billion.  In reality, it was likely less.  Also, tax credits are not a payment from the government to the company, they simply reduce the federal tax bill, so the government receives slightly less in tax revenues. 

Now for the numbers, with almost all data obtained from the US Energy Information Agency, the EIA.  Total wind-energy produced for 2015 was 190,127 GWh. Approximately 90 percent of that was obtained by wind-turbines that are 10 year old or newer.  Those wind-turbines, installed in the previous 10 years, receive the federal tax credit of 23 $/MWh.  On consistent basis, the wind energy was 190,127,000 MWh.   Total tax credits then is $3.9 billion (23 x 190,127,000 x 0.9 divided by 1 billion)

The total US electricity production in 2015 was 4 million GWH (4.087 million to be precise).  The average residential electricity price was 12 cents per kWh.   

However, the situation is far less dire than that shown above.  If everyone's electric bill increased by 0.75 percent, and the bill was $100 per month, the increase would be only 75 cents per month.   But, the money does not flow that way.   The consumer's tax bill does not increase to pay the wind subsidy.  

The federal government borrows money at the margins to pay for spending programs.  Much of the government revenue is from taxes, both personal and corporate, but another substantial part is from issuing debt instruments, or borrowing.  The wind subsidy of only $4 billion per year is borrowed from investors that purchase treasury bonds and other government notes.  The government pays only the interest on those bonds and notes, presently 2 percent per year.   Therefore, the true cost to the government for the wind subsidy is only 2 percent of $4 billion, or approximately $80 million.    In practical terms, the wind subsidy is almost nothing in a federal budget of $3.8 trillion.  

Roger E. Sowell, Esq.
Marina del Rey, California

copyrignt © 2016 by Roger Sowell, all rights reserved