The Costs Of Wind Production Tax Credits Provided In The IRA

Last year’s Inflation Reduction Act (IRA) was widely greeted as a landmark federal effort on clean energy and climate change. The Congressional Budget Office’s herculean task of scoring this massive piece of legislation that zoomed through Congress in an omnibus spending package was no small feat. But more recent data indicate the subsidies are going to cost more than what Congress was told before passing the legislation.

The formulas to subsidize the production of electric vehicle battery cells and modules are already proving to be even more expensive — potentially far more — than estimates provided to Congress at the time of passage in August. Last month, I demonstrated that the purported $30.6 billion 10-year production tax credits to the manufacturers of EV battery cells and modules were on track to have an actual budget impact of at least $43.7 billion and potentially as much as $196.5 billion over the decade.

My latest analysis shows the Congressional Budget Office’s 10-year estimate of 11.2 billion dollars for wind energy production credits — paid for putting wind-generated kilowatts into the grid — may not reflect the genuine cost, either. My own projections show that the price tag at a minimum will be more than double at $24.3 billion. Any cost estimate is just that — an estimate, but the growth rate of new wind electricity generation points to a higher price tag than originally thought.

There are many unknowns. For instance, take the capacity factor. Wind turbine power can depend on the weather, wind speed, and air radius. They do not run 24 hours a day, 7 days a week. Any cost estimates need to reflect actual capacity. The U.S. Geological Survey reports that the average capacity factor among recently built wind turbines in the US is 42%. Other sources note that annual outputs of 15% to 30% are more typical, though those seem to be based on older models.

At 2.75 cents production credit per kilowatt hour, and given current and projected gigawatts being added, the costs of the wind production credits could reach $24.3 billion, $48.7 billion, or $68.4 billion, based on a capacity factor of 15%, 30%, and 42%, respectively. Even the low end is more than double the spending that members of Congress thought they were approving.

CBO’s task of scoring massive pieces of legislation like the IRA is often next to impossible when so little information is available. But the difference between CBO’s estimate of $11.2 billion and estimates based on more recent data of up to $68.4 billion is large enough to warrant a deeper dive by policymakers. Treasury is writing important guidelines that will define eligibility. My hope is that these new figures spur discussion around the costs of the “Clean Energy Production Credits” in the IRA.