Tax Credits for Wind and Solar Work. Why are Texas Lawmakers Going After Them?
The electricity grid that services most of Texas, which is managed by the Electric Reliability Council of Texas (ERCOT), got almost 19% of its electricity from wind last year. That is an amazing fact in a state that is legendary for oil and gas. But despite wind energy’s dramatic expansion to become the No. 3 (soon to be No. 2) supplier of Texas electricity, not everyone is a fan. In fact, two pieces of legislation under consideration by Texas lawmakers, House Bill 2908 and Senate Bill 2232, would take some of the wind out of wind power’s sail.
Renewable forms of energy such as wind and solar are often criticized for the federal subsidies they receive. One reason is that the subsidies are easy to see, making them an easy target for critics.
Both bills would authorize a study to assess the impact of the tax credits on the Texas electricity market and make recommendations on how to use state policy to counteract the federal policy. Although some market tweaks could help improve resiliency, establishing a precedent to tax the industry with the second fastest job growth rate in the country is not the answer.
The Renewable Electricity Production Tax Credit (PTC), which is most often taken by wind farms, credits every mega-watt hour that wind produces $23 for the first 10 years of production. For solar, the Business Energy Investment Tax Credit (ITC) provides a 30% tax credit (applied to upfront installation costs) for the project. Both federal tax credits, the PTC and ITC, for renewable projects are being phased out over the next few years.
But the thing is, nonrenewable forms of energy also receive subsidies; they’re often just harder to see.
In Texas, many oil and gas operators get state severance tax relief to the tune of about $1.5 billion a year, or about 63% of state energy subsidies. And they do not have an expiration date. Nationally, fossil fuels and nuclear have received tens to hundreds of billions of dollars of research and development subsidies over the years.
And if we include environmental externalities such as pollution, CO₂, etc., that are changing the climate, affecting our national security and making the poorest among us sick, subsidies for fossil fuels likely would climb into the many trillions of dollars.
The Texas electricity market is unique because it is an “energy-only” market. There are many nuances, but the bottom line is that the Texas grid runs more efficiently than other similar markets and generally only pays power plants for producing power.