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Nuclear Company Blasts Wind Industry Tax Incentive

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Pickering Nuclear Power Plant & Wind Turbine | Photo: Sean Connors/Flickr/Creative Commons License

The largest operator of nuclear power plants in the United States has blasted the Wind Production Tax Credit in a commissioned study, calling the program a "high-cost subsidy" that forces consumers to pay increased and unreliable rates for electrical power. The study, Wind Intermittency And The Production Tax Credit: A High Cost Subsidy For Low Value Power, prepared for the Exelon Corporation by researcher Jonathan A. Lesser, was released today by the economic and litigation consulting firm Continental Economics.

Exelon, a large diversified energy generation and utility company based in Chicago, owns 34,650 megawatts of generating capacity, 55% of it nuclear. The company owns and/or operates 16 nuclear power stations in the eastern half of the United States, including Pennsylvania's Three Mile ISland.

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The Wind Production Tax Credit, which expires in December, has become a bit of a political football in recent months as Republicans and Democrats spar over the Obama administration's energy policy. The program offers 2.1 cents in tax credits to wind turbine owners for every kilowatt hour of power their qualifying turbines produce. An extension currently proposed by the Senate would continue the Production Tax Credit for another year at a projected cost of $12.2 billion.

Legislators' positions on the Production Tax Credit don't break down precisely along party lines: many recipients of the tax credits generate their wind power in solidly Republican midwestern Congressional districts, and their Representatives are often loath to advocate taking income away from constituents.

Exelon's report highlights the intermittency of wind power in the area served by three grid operators -- the PJM Interconnection, the Midwest ISO, and the Electric Reliability Council of Texas, which between them cover most of the northeastern quarter of the U.S., along with Texas and the province of Manitoba. The three areas encompass 27 gigawatts of installed wind power generation capacity.

The Exelon report claims that despite the lauded benefits of the Production Tax Credit,

In all three regions, over 84% of the installed wind generation infrastructure
fails to produce electricity when electric demand is greatest.

Electric demand often peaks when temperatures climb, which is also when winds tend to be relatively slack. That's not news. The Production Tax Credit pays for each kilowatt-hour of wind actually produced and fed into the grid, so it's not precisely paying turbine owners that don't provide energy.

Whether the subsidy is a wise economic policy is a fair question nonetheless, and Lesser clearly considers any artificial subsidy a greater evil:

like all subsidies, the PTC is economically inefficient. Subsidies distort competitive markets, drive out unsubsidized competitors, and reduce the incentives to innovate and improve efficiency.

It is worth noting that Exelon, as an owner and operator of more nuclear power plants than any other American company, benefits to a considerable degree from what is potentially one of the largest government subsidies of energy production in world history, the Price Anderson Nuclear Industries Indemnity Act. First passed in 1957 and currently extended until 2025, Price Anderson limits the liability of nuclear power plant operators for any accident their reactors may cause, and commits the federal government to pay any damages extending beyond that cap. When the act was first passed, utilities contended that it was vital to the existence of the nuclear industry: no electrical power companies were willing to take on the potential liability involved in running a nuclear power plant if they had to buy their own insurance.

Under the Price Anderson language currently in force, a power plant operator's liability for damages caused by an accident at a single power plant is limited to about $375 million, with damages above that amount paid out of a pooled fund into which plant operators would contribute $119 million per reactor if an accident occurs. With 104 reactors in the U.S., that fund would come to a bit under $13 billion. Any shortfall or damage overage would be covered by the federal government.

If the Fukushima reactors had been covered by the Price Anderson Act, federal liability for damages from the 2011 accidents would have run into the hundreds of billions of dollars. Which makes $12.2 billion for a year's worth of wind energy look like lunch money.

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