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The impact of Production Tax Credits on the profitable production of electricity from wind in the U.S

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  • Lu, Xi
  • Tchou, Jeremy
  • McElroy, Michael B.
  • Nielsen, Chris P.

Abstract

A spatial financial model using wind data derived from assimilated meteorological condition was developed to investigate the profitability and competitiveness of onshore wind power in the contiguous U.S. It considers not only the resulting estimated capacity factors for hypothetical wind farms but also the geographically differentiated costs of local grid connection. The levelized cost of wind-generated electricity for the contiguous U.S. is evaluated assuming subsidy levels from the Production Tax Credit (PTC) varying from 0 to 4 ¢/kWh under three cost scenarios: a reference case, a high cost case, and a low cost case. The analysis indicates that in the reference scenario, current PTC subsidies of 2.1 ¢/kWh are at a critical level in determining the competitiveness of wind-generated electricity compared to conventional power generation in local power market. Results from this study suggest that the potential for profitable wind power with the current PTC subsidy amounts to more than seven times existing demand for electricity in the entire U.S. Understanding the challenges involved in scaling up wind energy requires further study of the external costs associated with improvement of the backbone transmission network and integration into the power grid of the variable electricity generated from wind.

Suggested Citation

  • Lu, Xi & Tchou, Jeremy & McElroy, Michael B. & Nielsen, Chris P., 2011. "The impact of Production Tax Credits on the profitable production of electricity from wind in the U.S," Energy Policy, Elsevier, vol. 39(7), pages 4207-4214, July.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:7:p:4207-4214
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    References listed on IDEAS

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    4. Goldfarb, Jillian L. & Buessing, Marric & Kriner, Douglas L., 2016. "Geographic proximity to coal plants and U.S. public support for extending the Production Tax Credit," Energy Policy, Elsevier, vol. 99(C), pages 299-307.
    5. Bahramian, Pejman & Jenkins, Glenn P. & Milne, Frank, 2021. "A stakeholder analysis of investments in wind power electricity generation in Ontario," Energy Economics, Elsevier, vol. 103(C).
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    11. Brown, Jason P. & Weber, Jeremy G. & Wojan, Timothy R., 2013. "Emerging Energy Industries and Rural Growth," Economic Research Report 262215, United States Department of Agriculture, Economic Research Service.
    12. Kumar, Indraneel & Tyner, Wallace E. & Labi, Samuel & Sinha, Kumares C., 2021. "“The Answer My Friend is Blowin’ in the Wind”: A stochastic assessment of wind farms financial feasibility and economic efficiency," Energy Policy, Elsevier, vol. 159(C).
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    14. Schumacher, Kim & Yang, Zhuoxiang, 2018. "The determinants of wind energy growth in the United States: Drivers and barriers to state-level development," Renewable and Sustainable Energy Reviews, Elsevier, vol. 97(C), pages 1-13.
    15. Fell, Harrison & Linn, Joshua & Munnings, Clayton, 2012. "Designing Renewable Electricity Policies to Reduce Emissions," RFF Working Paper Series dp-12-54, Resources for the Future.
    16. Gacitua, L. & Gallegos, P. & Henriquez-Auba, R. & Lorca, Á. & Negrete-Pincetic, M. & Olivares, D. & Valenzuela, A. & Wenzel, G., 2018. "A comprehensive review on expansion planning: Models and tools for energy policy analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 98(C), pages 346-360.
    17. Liu, Jian & Ou, Meng & Sun, Xinyue & Chen, Jian & Mi, Chuanmin & Bo, Rui, 2022. "Implication of production tax credit on economic dispatch for electricity merchants with storage and wind farms," Applied Energy, Elsevier, vol. 308(C).
    18. Brown, Jason P. & Pender, John & Wiser, Ryan & Lantz, Eric & Hoen, Ben, 2012. "Ex post analysis of economic impacts from wind power development in U.S. counties," Energy Economics, Elsevier, vol. 34(6), pages 1743-1754.
    19. John L. Pender & Jeremy G. Weber & Jason P. Brown, 2014. "Sustainable Rural Development and Wealth Creation," Economic Development Quarterly, , vol. 28(1), pages 73-86, February.
    20. M. V. Chernovalova & I. M. Makarova, 2022. "Development of street lighting systems based on projects in the field of energy conservation and the use of alternative energy sources," Entrepreneur’s Guide, JSC “Publishing Agency “Science and Educationâ€, vol. 15(1).
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