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“Negative Electricity Rates and Production Tax Credit” (2012 warning for Texas not to be concerned) – Are you up with that?


From MasterThe source

By Robert Bradley Jr. – May 17, 2022

[Editor note: The current (May) problems of the Texas Grid reflect a socialized wholesale market (ERCOT) in light of the wind/solar cancer that has wounded the ‘reliables.’ Specifically, negative pricing of windpower, a decade-old phenomenon, has ruined margins for natural gas and coal plants, causing premature retirements, decisions against new capacity, and less maintenance.]

Important history to understand about today’s injured Texas power grid. There have been warnings again and again that the distorted market will have reliability issues and reliability problems will cause price spikes for the worst of all. world.

Research review Negative electricity prices and production tax deductions“By Frank Huntowski, Aaron Patterson and Michael Schnitzer (NorthBridge Team: September 10, 2012), commissioned by Exelon, whose nuclear plant profit margins have been severely damaged by the predatory price of the nuclear power plant. wind.

The article was subtitled: “Why wind producers might pay us to get it
power – and why it’s a bad thing. The executive summary spoke for itself — and spoke loudly today in Texas, as well as other parts of the country, as a result of the federal Production Tax Credit for wind, which was extended. 13 times.

In both economic and public policy terms, no government subsidy on production taxes is so large that it creates an incentive for a business to actually pay customers to buy its products. However, the federal Production Tax Credit (“PTC”) for wind power generation is doing just that with increasing frequency in power markets across the United States.

In some “wind-rich” parts of the country, wind producers are paying grid operators to generate electricity during times of oversupply. But wind producers more than offset the cost of the “negative” payment, because they receive a federal production tax credit of $22/MWH for every MWH generated.

The federal Wind Production Tax Credit (“PTC”) was originally enacted in 1992 to kickstart the wind energy industry. The PTC has since been renewed six times [now 13 times] and currently expires on December 31, 2012. Today, policymakers on both sides are debating the merits of another subsidy expansion on multiple grounds. This article focuses on a harmful, but often overlooked, aspect of PTC – namely, how PTC interacts with the wholesale electricity market to create a misleading “negative price” phenomenon. Although the concept of negative prices at first glance appears to be a money-saving measure for electricity users, or at best a harmless phenomenon, in reality these negative prices are: (a) funded by taxpayers; (b) distort the wholesale electricity market; and (c) compromise conventional generation and increase reliability.

Recently, on September 6, 2012, the Public Utilities Committee of Texas President Donna Nelson warned policymakers against further subsidies, noting that the PTC had undermined the credibility of Texas. :

“Federal incentives for renewable energy… have distorted the competitive wholesale market in ERCOT. Wind has been supported by a federal production tax credit that provides $22 per MWH of energy generated by the wind resource. With this substantial incentive, wind resources can actually bid negative into the market and still make a profit. We have seen some negative clearing days in the western part of ERCOT where most of the wind sources are installed….

The distortion of the market due to renewable energy incentives is one of the main reasons that I believe our current resource sufficiency problem… [T]His distortion makes it difficult for other generation types to recover costs and discourages investment in the new generation. ”

As part of our analysis, we looked at real-time pricing and energy production information from the nation’s grid operators to understand the producers’ production characteristics and bidding behavior. wind production and to assess their impact on conventionally essential power sources.

We see that:

The PTC undermines and distorts price signals in the wholesale electricity market by incentivizing PTC-subsidized wind power producers to sell power at a loss to earn huge tax subsidies.

This taxpayer-funded subsidy artificially lowers wholesale electricity prices, and during times of the year when electricity demand is low, it can lead to negative pricing. Figure 1 shows the frequency of negative prices in some particularly wind-rich regions during 2006-11 along with the growth in installed wind capacity nationally over the same period.

This figure shows a clear link between wind generation and negative prices.

Wind producers can easily turn wind turbines on and off, but there is no incentive to do so because they still receive a positive profit margin during negative price hours due to the PTC subsidy they earn when generating. They have no incentive to cut their output – which, without the PTC, would benefit their economies. Failure of wind generators to cut output when wholesale prices are near zero has both short-run factors
and long-term negative consequences. In the short term, wind producers’ inability to cut output makes it harder for system operators to maintain reliability and also makes it more costly for them to operate the regional grid.

In the long run, PTC destabilizes the conventional electricity market as generators that do not qualify for PTC are significantly harmed by negative prices, both in terms of short-term day-to-day operations decisions, as well as long-term decisions to build or retire generations.

As a result, America’s continued dependence on PTC subsidies will always preclude the investments in conventional power generation needed to maintain a reliable power system. Conventional generation is important for reliability because wind generation typically produces no power during times of peak electricity demand, while production is at a premium (and causes negative prices) when low demand. In recent years, about
On average 85% of total wind capacity is idle during peak hours of the highest demand days of the year. Therefore, a controllable conventional generation is needed to block the wind and ensure the lights stay on. Our findings lead us to conclude that PTC should be allowed to expire under applicable law.

PTC-directed negative prices are in direct conflict with the performance and operating needs of the power system and with federal energy policies that support well-functioning competitive wholesale markets. We urge policymakers to: (1) reconsider national energy policy based on excessive tax incentives that force wind producers to pay system operators to use energy. their wind volume; (2) address the fact that wind energy, an important part of the energy mix, remains unpredictable and cannot be relied upon, especially during periods of high demand; and (3) ensuring that wind promotion policies do not undermine conventional technologies needed to maintain reliability.



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