Oklahoma has realized that it can no longer afford its zero emissions tax credit, whose cost ballooned by more than a factor of 30 in just 4 years. The tax credit cost the state $3.7 million in 2010, but increased to $113 million in 2014. It was supposed to sunset by 2021, but it will now sunset this July 1.[i] Wind projects completed before the sunset date are eligible to claim the credit for up to 10 years. The tax credit stimulated the growth of the wind industry in Oklahoma; the state ranks third among the states for installed wind capacity (behind Texas and Iowa), with 6,646 megawatts. In 2016, wind produced 25 percent of Oklahoma’ electricity.[ii]
Oklahoma’s Zero Emission Tax Credit
Beginning January 1, 2003, Oklahoma instituted a state income tax credit to producers of electric power using renewable energy resources from a zero-emission facility with a production capacity of 1 megawatt or greater. Besides wind, eligible renewable energy resources include moving water, sun, and geothermal energy. Credits are available for electricity generated on or after January 1, 2003, during a 10-year period following the date that the facility is placed in operation. The credit ranges from $0.0025 per kilowatt hour to $0.0050 per kilowatt hour depending on when the facility is placed in operation and when electricity is generated.[iii]
For electricity generated by eligible facilities on or after January 1, 2003, but prior to January 1, 2004, the amount of the credit was seventy-five one hundredths of one cent ($0.0075) for each kilowatt-hour of electricity generated. For electricity generated after January 1, 2004, but prior to January 1, 2007, the amount of the credit was $0.0050 per kilowatt hour. For electricity generated after January 1, 2007, but prior to January 1, 2012, the amount of the credit was $0.0025 per kilowatt hour. For electricity generated by facilities placed in operation after January 1, 2007 and before January 1, 2021, the amount of the credit is $0.0050 per kilowatt hour.
Renewable Energy Also Gets the Majority Share of Federal Tax Credits
In March, the Congressional Budget Office (CBO) provided testimony to Congress on tax preferences provided to energy producers in 2016. According to the CBO, approximately $10.9 billion, or 59 percent, of federal energy tax preferences went to renewable energy. Of that, $3.4 billion was used for the production tax credit, which is the federal tax credit that funds wind production. A further $2.7 billion, or 15 percent, went to energy efficient technologies or electricity transmission. Only $4.6 billion or 25 percent of energy related tax incentives went to fossil fuels and just 1 percent of tax incentives went to nuclear energy.[iv] Yet, wind only supplied 2 percent of our energy consumption and 5.6 percent of our electricity in 2016.
Small Generation Shares are the Norm
In Australia, for example, wind energy only produces a small share of its generating needs, as the graph below depicts. The country has been building wind energy for 14 years, and has 43 wind farms, containing 2400 wind turbines. The wind turbines operate at around a 30 percent capacity factor, while coal and natural gas combined cycle units can operate at over an 85 percent capacity factor.
To show the stark contrast between the fossil fuel and wind generating units, a researcher compared the output of a 53 year-old coal-fired generating unit to the country’s entire wind fleet. The 53 year-old coal plant was retired earlier this year, despite its ability to generate far more power than the wind units. The researcher compared the output of the eight generators at the Hazelwood coal facility to the total wind farm generation across Australia’s National Electricity Market. Over the first 18 days of March, the coal plant produced over 7 percent more power than all the windfarms in the National Energy Market. Hazelwood delivered 561 gigawatt hours over the 18 days, while wind delivered 521 gigawatt hours.
The graph below compares wind power across the entire National Electricity Market with the 1360 megawatts (assuming an 85 percent capacity factor) for Hazelwood. Most of the time Hazelwood is outdoing all 43 wind farms. Only during peaks (yellow) does production climb above the total of the old coal-fired power station.[v]
The wind industry is reaping a lot of tax benefits from state and federal programs. Oklahoma realizes that it cannot sustain the outlays from its treasury for the tax credits and has sunset the program early. The U.S. production tax credit for wind does not sunset until the end of 2019, so the tax credit will continue to fund wind power development for several more years, at the detriment of the U.S. Treasury and taxpayers.
[i] The Hill, Oklahoma ends wind power subsidy, April 17, 2017, http://thehill.com/policy/energy-environment/329175-oklahoma-ends-wind-power-subsidy
[ii] Energy Information Administration, Electric Power Monthly, February, 2017, https://www.eia.gov/electricity/monthly/current_year/february2017.pdf
[iii] Energy, Zero Emission Facilities Production Tax Credit, https://energy.gov/savings/zero-emission-facilities-production-tax-credit
[iv] Congressional Budget Office, March 29, 2017, http://docs.house.gov/meetings/IF/IF03/20170329/105798/HHRG-115-IF03-20170329-SD002.pdf
[v] Jo Nova, Hazelwood Countdown: 53 years old and making more electricity than Australia’s entire wind industry, http://joannenova.com.au/2017/03/hazelwood-countdown-53-years-old-and-making-more-electricity-than-australias-entire-wind-industry/