Policy Documents

The Cost of the Production Tax Credit and Renewable Energy Subsidies in Texas

Bill Peacock, Josiah Neeley –
November 14, 2012

At a bare minimum, renewable energy subsidies in Texas run on average about $1.3 billion a year, with the Production Tax Credit (PTC) taking up almost half of that cost. Because of the PTC’s per megawatt hour subsidy, it causes substantially more distortion to the market than other renewable subsidies. A credible case could be made that the PTC is more responsible than any other single factor in causing ERCOT’s resource adequacy challenges. Competition is working in Texas. It is government interference with the market—led by the PTC—that is causing the current concerns over reliability. Texas need not abandon wholesale competition and move toward a capacity market. But there will likely be efforts to do so as long as the PTC is in place. Congress should allow the PTC to expire; if not, consumers, taxpayers, and Texas’ world-class energy-only electricity market will pay the price.