Wind Power Information: Part 1on August 9th, 2011 at 7:53 am
Attached is a large portion of an email from Glenn Schleede, one of the most knowledgeable experts on industrial wind power. This is a very long post, but includes some of the key points that should be considered by the Roanoke County BOS on 8-23. I will be linking this to our Wind Power page so you can have easy access to the information.
Substantive information about wind energy costs, benefits and economics
Your assumption that information from the “wind farm” developer, the wind industry, government agencies and “laboratories,” and academics are factual and unbiased is incorrect. You will need to broaden your sources of information if you are to understand wind energy cost and benefits. You also will need to develop discernment skills that will permit you to distinguish between industry and government propaganda and facts.
You can take some comfort in knowing that you are not alone in having a limited understanding of the true costs and benefits of wind energy. For more than a decade the wind industry and other wind advocates have overstated the environmental, energy, and economic benefits of wind turbines and understated or ignored their adverse environmental, ecological, economic, energy reliability, scenic and property value impacts. They have misled the public, media, and government officials and created a false popular wisdom about wind energy.
Fortunately, during the past five or six years, much has been learned about the true costs and benefits of wind energy and now many studies and reports by knowledgeable experts are readily available via the Internet. You will see that the facts that have been uncovered challenge the “popular wisdom” created by wind energy advocates. (One book that you might find particularly interesting is, The Wind Farm Scam, written by prominent UK ecologist, John Etherington.[i])
Among the facts about wind energy economics that have emerged from research and analysis in the US and other countries are the following:
1. Electricity from wind is high in cost and low in value. The fact that electricity from wind is very high in true cost is widely recognized, even by wind energy advocates. What is not widely understood is that the electricity produced by wind turbines is low in real value. Many people have assumed that a kilowatt-hour (kWh) has the same value regardless of the generating unit that has produced it. In fact, electricity from wind is low in value because it is intermittent, volatile, unreliable, and most likely to be produced at times of low electricity demand and value — e.g., at night in colder periods — rather than on hot weekday afternoons when electricity demand is high. Facts are readily available to help you understand these issues.[ii]
2. “Wind farms” are being built primarily because of massive federal and state tax breaks and subsidies, not because of their environmental or energy benefits. When the federal government began giving subsidies and tax breaks for wind energy, these measures were justified on ground that wind turbines were a relatively new technology that needed help until the technology became commercially viable. Since then, billions of tax dollars have been spent for wind energy R&D, tax breaks, and subsidies and those dollars continue to flow.[iii] However, as the wind industry has made clear through its extensive lobbying efforts to continue and expand its tax breaks and subsidies, wind energy is unlikely to ever become a commercially viable source of electricity.
This bleak outlook for commercial viability of wind energy is not limited to the US. The people and government in the UK are struggling with that country’s wind energy policies. Recently, the UK Energy Minister (Charles Hendry) stated that his government “…had spent £2.2 billion supporting wind power over eight years – and it was impossible to predict when the energy source would prove profitable without grants.” Apparently, “experts” in the UK are predicting that wind subsidies could reach 30 billion pounds ($48.5 billion US) per year by 2030 — equal to 1% of the UK’s GDP, a rather clear indication that the UK will soon follow other European countries in cutting wind subsidies. [iv]
More information about the massive federal and state tax breaks and subsidies is readily available.[v]
3. States and countries that have been aggressive in promoting wind energy have high electricity prices. For example, in 2007, household electricity prices in Denmark were 34.4 cents per kWh and in Germany, 26.3 cents per kWh, compared to 10.6 cents per kWh in the US. In 2008, Denmark’s prices grew to 39.6 cents per kWh compared to 11.3 cents per kWh in the US.[vi] (2008 data for Germany not yet available from EIA.)
In the US, California, New York and Massachusetts are among the states with aggressive policies seeking to force greater use of renewable energy. Average residential prices per kWh during 2009 in these states – compared to Virginia and the US average are shown in the table below.[vii] (These prices do not include the cost of federal and state tax breaks and subsidies that flow directly to electric generating companies that show up in tax bills, not electric bills.
New York – 17.80 cents
Massachusetts – 17.02 cents
California – 15.05 cents
National Average – 11.55 cents
Virginia – 10.61 cents
State renewable mandates and high cost electricity from wind and other renewables are not the sole cause of these states’ high electricity prices, but there is no doubt that they are contributing factors.
4. You should be very careful in making assumptions or accepting a developer’s claims about local and regional economic benefits that might result from the proposed “Poor Mountain Wind Energy Project.” The claims outlined in your email are much like those stated on Invenergy’s web site.[viii] Whether the claimed benefits would actually be achieved is far from certain. Wind energy promoters – including developers, the US DOE, and NREL — have been known to overstate potential benefits.
You should be aware of the high potential for overestimating benefits, particularly if a “wind farm” developer uses NREL’s “JEDI” (Jobs and Economic Development Impact) model to estimate potential local and regional benefits.[ix] You should reconsider several aspects of your claims; e.g.:
a. Your claim that “The proposed Invenergy project in Roanoke County would require a private investment of $80 to $100 million…” is incorrect. Perhaps, you do not understand (a) the generosity of federal tax breaks to “wind farm” developers and/or (b) how those tax breaks affect private investment. In fact, under current federal and state tax laws and federal grant program, developers can build an $80 to $100 million “wind farm” with little or none of their own equity. Because of the cash flow advantages of accelerated depreciation for corporate tax purposes,[x] developers can take advantage of what is, in effect, an interest free loan that more than offsets their equity investment. Also, federal economic “stimulation” legislation[xi] authorized cash grants of up to 30% of estimated capital costs for building “wind farms.” Thus, for all practical purposes, it is taxpayer dollars – not “wind farm” developer equity — that is financing “wind farms.”
Information is readily available about generous federal and state tax breaks and subsidies and how they work.[xii] Also, please note that tax breaks for “wind farm” owners mean that tax burden is shifted from the owners to ordinary taxpayers who do not have such tax shelters.
b. You should not assume that all or most of the temporary (construction period) or permanent jobs resulting from a “wind farm” will be filled by local workers. Companies building wind farms may employ some local workers during construction (9 to 12 months, according to Invenergy) for such jobs as truck drivers, heavy equipment operators, and laborers. Typically, firms installing turbines, towers, blades, and electronic control equipment will import employees for relatively short periods for the higher paying, higher skilled managerial and technician positions. Workers who build substations and transmission lines may be obtained locally or regionally. The few permanent positions (3 according to Invenergy) are often filled by people from outside the local area or region.
c. Whether the estimated “$3 million in local goods” that you claim will occur or will have any significant local economic benefit is unclear. In particular, you should note that not all local purchases have local economic benefit. Only the local “value added” portion of the cost of local purchases of goods and services would have local economic benefits.[xiii] (Also, note that Invenergy includes “labor” in its $3 million local benefit estimate.)
d. The fact that the “private landowner would realize long-term financial benefits” does not necessarily mean that the local or regional economy would benefit from that income. The landowner(s) leasing land for the proposed Poor Mountain” may receive $5,000 to $10,000 per megawatt (MW) of capacity per year in rental income (i.e., $187,500 to $375.000 per year or $3,750,000 to $7,500,000 over 20 years). However:
i. Whether any of this rental income would benefit the local or regional economy depends entirely on where that income is spent or invested. If it were used to buy property in Florida or a new Mercedes built in Germany, or invested in a mutual fund in New York there would be little or no economic benefit in the Roanoke area.
ii. While the landowner may enjoy the additional income, neighboring property owners, particularly if they are relatively close, could end up experiencing the adverse impacts that neighbors of other “wind farms” have had to endure (e.g., noise, shadow flicker, scenic and property value impairment).
5. Local government officials who must make decisions about permits for the proposed Poor Mountain project must also be careful when dealing with the developer of the project. Certainly, those now in office will find attractive the promise of additional tax revenue and other benefits that the developer may offer to gain local government permits. Local government officials will undoubtedly face several significant challenges as they deal with aggressive wind farm” developers. For example:
a. The developer and the people representing him are unlikely to be the same organization and people that will be in control of the project over all its presumed life. It is quite common for “wind farms” to change hands (i) once permits are obtained, (ii) after construction is complete, or (iii) a few years later. Agreements with or promises from those representing the developer or owner at the time of permit proceedings may not survive changes in ownership.
b. Most “wind farms” in the US are “owned” by single asset Limited Liability companies (LLCs) that are subsidiaries or affiliates of a larger parent corporation. (The single asset is the “wind farm” equipment and, perhaps, a Purchase Power Agreement (PPA) with an electric utility covering the sale of electricity.) Such an organization may appear to be credit worthy initially but whether it will remain so for the assumed life of the project is questionable.
c. The “wind farm” developer may be reluctant to provide firm assurance that money will be available to decommission the project and restore land at the end of the project’s useful life. Some developers may claim that the scrap value of the equipment will be adequate to cover such costs but careful studies have been done that demonstrate that this is not the case.[xiv] Offers of a bond or an escrow account under the control of the LLC or its parent may have little value if bond premiums are paid or the project goes into bankruptcy. A cash bond for the full cost of decommissioning and restoration, with the cash held in escrow by a third party may be necessary to protect the landowner and the area against ending up with a “wind farm” junkyard.
d. Another uncertainty is whether the project will last as long and produce as much electricity as the developer assumes. None of the wind turbines of the size suggested by the Invenergy has been in operation for more than a few years, probably less than five. Therefore, the true useful life, the amount of electricity that will be produced, and the operations and maintenance costs are unknowns. The risk is increased by the fact that all or most of the government tax benefits and subsidies are “front end loaded”; i.e., they are received by the developer or owner in the first five or 10 years of the project’s life. If performance is less than expected or costs of operating, maintaining and/or replacing turbines and other equipment are high, the owner may have a strong incentive to sell or abandon the project.
e. The above consideration are particularly important if the rental payments for the landowner or tax payments to local governments are tied to the amount of electricity produced or to profit levels (both of which could be zero) – rather than fixed payments guaranteed by a credit worthy parent corporation or surety.
6. So, who are the potential “winners” and “losers” from a “wind farm” project? Your email assumes that the proposed Poor Mountain project produces all benefits and no costs. This certainly isn’t the case. More specifically:
a. The project developer or owner(s) will certainly be big winners, principally because of the generous federal and/or state tax breaks and subsidies, usually front end loaded.b. The landowner(s) are small winners because of the additional income (perhaps $187,500 to $375,000 per year or $3,750,000 to $7,500,000 million over 20 years if the project last that long.
c. Some local companies may see increased business during the relatively short (6 – 9 month) construction period. These might include the suppliers of sand and gravel, restaurants, and motels.
d. The big losers are ordinary taxpayers and electric customers. Specifically:
i. Ordinary taxpayers end up bearing the tax burden escaped by “wind farm” owners. This includes the production tax credit of $0.022 per kWh during the first 10 years of the project’s life, the benefits of accelerated depreciation and/or the Section 1603 (ARRA) cash grant program. The cost of these tax breaks varies by project but is in multiple tens of millions of dollars.
ii. The added cost borne by electric customers also runs in the millions. If we assume the 37.5 MW Poor Mountain project is built and achieves a capacity factor of 30%, it would produce 98,550,000 kilowatt-hours of electricity per year.[xv] This may seem like a lot of electricity but, in fact, it is equal to only 14/100 of 1% of the 71,160,000,000 kWh of electricity produced in Virginia during 2009
If the final delivered price of that electricity to Virginia’s electric customers was only 2 cents per kWh higher (a very conservative assumption) than electricity from traditional sources, the added cost burden on electric customers from this one “wind farm” would be $1,971,000 per year or nearly $40 million over 20 years.[xvi] That figure does not included the additional “incentives” provided electric utilities by the Virginia General Assembly (.5% return on equity for “investments” in renewable energy facilities and another .5% for achieving targets in Virginia’s voluntary Renewable Portfolio Standards (RPS).
Glenn R. Schleede
[i] Etherington, John R, The Wind Farm Scam, 2009.
[ii] See: http://www.windaction.org/documents/25496 & http://www.wind-watch.org/documents/?p=1671
[iii] Over $5 billion in cash grants was recently distributed by the Treasury Secretary to “wind farm” owners from the “stimulus” funds authorized by The American Recovery and Reinvestment Act of 2009, (Pub.L.111 -5) supposedly to create jobs in the US. However, most of that money went to (a) “wind farms” that were already completed and/or (b) owned by foreign-based companies (including over $600 million to Iberdrola of Spain). http://investigativereportingworkshop.org/investigations/wind-energy-funds-going-overseas/story/renewable-energy-money-still-going-abroad/ Also, see US Energy Information Administration’s report, Federal Financial Interventions and subsidies in Energy Markets, 2009. Note in particular the table that compares subsidies on a per kWh basis for wind, solar, and other energy sources used in generating electricity that can be found in
Table 35, page 106: http://www.eia.gov/oiaf/servicerpt/subsidy2/pdf/chap5.pdf
[ix] False claims that “wind farms” provide large economic and job benefits, http://alleghenytreasures.wordpress.com/glenn-schleede/5676-2/
[x] Specifically, five-year double declining balance accelerated depreciation. Under recent federal “stimulus” laws, those making capital investments can take advantage of first-year “bonus” accelerated depreciation deductions equal to either 50% or 100% of project capital investment costs.
[xi] Section 1603, of The American Recovery and Reinvestment Act of 2009, (Pub.L.111 -5), as amended.
[xiii] Ibid. Paragraph 5, page 1.
[xiv] One such study was done by a firm called Energy Venture Analysis, Inc. of Arlington, VA.
[xv] 37.5MW x 1,000 = 37,500 kW. 37,500 kW x 8760 hours per year x .30% capacity factor = 98,550,000 kWh.
[xvi] 98,550,000 kWh x $0.02 per kWh.