New Texas bill seeks to address market distortion caused by federal subsidies

 Market distortion began after the federal government began pushing a “green energy” initiative by creating massive taxpayer subsidies through a Production Tax Credit to “qualified energy resources.”

Congress created PTCs by amending Title 26 Subsection 45 of the U.S. tax code, which outlines the terms for “qualified energy resources” and the amount of federal tax credits they can receive. Qualified energy resources include wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy.

It allows them to claim a tax credit for every kilowatt-hour (kWh) of electricity they generate of up to 30% for up to 10 years. The Biden-era Inflation Reduction Act created additional subsidies. Wind companies, especially in Texas, were major benefactors.

While often referred to as “renewable energy,” wind and solar provide intermittent energy that relies on sunlight and the wind blowing. During peak sunlight hours or on windy days, solar plants and wind turbines can produce a supply that exceeds demand. Excess intermittent wind energy is often wasted because storing it isn't cost effective. Excess solar energy is stored in massive battery farms. By contrast, on cloudy, windless days, little energy is produced and it can’t meet demand, especially during peak times, energy professionals have explained to The Center Square.

Federal subsidies have enabled intermittent energy companies to operate at a loss while also undercutting the Texas energy market, state lawmakers argue.

“Because the federal subsidies are incentivizing wind and solar and because ESG is cutting off capital to natural gas plants, that's why we felt like we had to do something,” state Sen. Bryan Hughes, R-Mineola, said at a recent event in Austin, The Center Square reported. He’s referring to the state legislature creating a $5 billion energy fund, which voters approved and the legislature is expected to double this year.

State Sen. Kevin Spark, R-Midland, has also filed several bills to address a range of energy issues. One includes SB 714, which requires the Public Utility Commission of Texas, and ERCOT, the regulatory body that oversees Texas’ grid, to adjust rates by adopting rules, operating procedures, and protocols based on the PTC subsidies wind energy companies receive that operate in an ERCOT power region.

It also ensures that the price of producing and maintaining capacity are assumed by the parties imposing the costs and not taxpayers. The bill will “provide needed transparency on market distortions from the federal government for renewables,” argues Sparks, the only member of the Texas legislature who’s an executive of an oil and gas exploration and production company.

According to a Texas Public Policy Foundation analysis of federal energy subsidies from 2010-2023, taxpayers funded $76 billion worth of subsidies for solar and $65 billion for wind. By comparison, federal subsidies for oil and natural gas totaled $33 billion over the same time period.

“While wind and solar have each received more than twice as much as oil and gas, the more important point is how much they depend on federal subsidies for their profitability,” the report notes. “Wind has received 48 times more subsidies per unit of electricity generated than oil and gas and solar 168 times more.”

Not all subsidies are the same. Wind and solar subsidies primarily focus on installation using current technology; subsidies for nuclear and fossil fuels focus on research, development, exploration and new technologies.

“Wind and solar subsidies – along with a new production tax credit for existing nuclear power plants – have a strong distorting effect on U.S. electricity markets, especially in Texas,” the report says, citing numerous data.

In 2021, 7,352 megawatts of solar, wind and battery storage were installed in Texas, nearly three times more than what was installed in California because of a Dec. 31, 2021, deadline to receive access to federal tax credits, according to a Foundation for Research on Equal Opportunity analysis.

“This shift didn’t happen because Texans care far more about emissions than Californians. It happened because of Texas’ regulatory environment, coupled with the greater availability of affordable land. Tax credits pay the producers for their energy, even if no one wants it,” FREO explains.

Despite the disproportionate increase in wind installation, wind energy output declined from 2022 to 2023, whereas natural gas output increased and natural gas energy prices dropped over the same time period, according to a 2023 ERCOT electricity market report.

New Texas bill seeks to address market distortion caused by federal subsidies