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Even the OboZ0Zer0 has noted that our electric bills would triple if he gets his way.

Below are excerpts re cost from an interesting paper from the National Taxpayers Union:

http://www.ntu.org/main/press_release.php?PressID=562&org_name=NTU

A Costly Commodity

There is little doubt that electricity produced by windmills is more costly than electricity produced from other energy sources. Several economic implications deserve attention when evaluating the costs of electricity from wind and the DOE proposal:

Relative cost of electricity produced by windmills compared to electricity produced from other energy sources.
Cost of transmitting the electricity from windmill sites to areas where it is needed.

Real costs of electricity from windmills, taking into account costs that are hidden, downplayed, or ignored by DOE when making comparisons.

A reasonably accurate comparison of the costs of electricity produced from various energy sources is well beyond the scope of this paper. In fact, solid data on relative costs is difficult to find in public sources. Organizations such as the Electric Power Research Institute (EPRI)14 and Energy Information Administration15 have attempted such comparisons but their completeness and accuracy remain unclear.

When relative costs are discussed, DOE and other wind energy advocates tend to emphasize:

Progress made in reducing costs through improved technology.

R&D programs underway that may reduce costs in the future.
Environmental advantages of wind energy (e.g., few air emissions) compared to the use of coal, natural gas, or oil.

Based on available information on economic costs, there seems to be no doubt that electricity generated from wind energy is more costly than electricity generated by hydro power and it is also almost always more costly than electricity generated by using fossil fuels (coal, oil, or natural gas).16

Costs of electricity generated from hydropower, gas, oil, coal, and nuclear energy tend to be better defined because of much greater experience with generating units using those energy sources. Much less experience and less data are available on the true costs of electricity generated from windmills. In fact, when complete data are not available, cost comparisons among energy sources and even among generating plants using the same energy source must be regarded with caution because costs vary widely due to site-specific conditions. Adding a new generating unit at an existing generating plant site generally will be less costly than at a new (”greenfield”) site. For example, little or no expansion may be necessary at an existing facility for land, maintenance and support facilities, fuel transportation and storage, access to transmission lines, and/or access to water. Also, costs for taxes and insurance may vary widely from one site to another.

Another variable affecting the costs of developing wind fields is the fact that financing costs vary widely from place to place. Factors such as the way plant ownership is structured, the type of financing, debt-equity ratios, the credit-worthiness of the borrower, whether the borrower is a regulated utility or an independent power producer, and, if project-financed, the confidence of the lender in the business arrangements, can all come into play.

Frequently, the full costs that are incurred by the owner or developer are not made public. These may include any or all of the following in a large wind project:

Engineering costs;
General and administrative costs;
Land and infrastructure costs;
Tax, insurance, and interest costs;
Costs incurred in approval for a windmill or wind farm site, and getting other licenses and permits from various federal, state, and local government agencies.
Costs incurred to secure approval or acquiescence of siting boards, citizens, neighbors, or advocacy groups that would otherwise oppose granting permits. (Developers have been known to agree to pay significant amounts of money for a wide variety of things to secure approvals or reduce opposition to proposed generating plants, including scholarships, parks, and fire equipment.17)
Cost estimates for wind projects require close scrutiny for several reasons. Specifically:

Costs per kWh of electricity generated depend heavily on actual capacity factors (i.e., actual production as a percent of theoretical capability) which, in turn, depend heavily on actual wind conditions. Wind conditions vary widely.

Costs of building transmission lines can be significant unless the wind power facility is located very near existing transmission lines. This can be a special problem for windmills since they are likely to be located in remote areas, thus increasing the potential for transmission-line losses of electricity.

Promoters of new technologies that are being developed with subsidies from federal agencies have been known to deliberately or inadvertently underestimate true costs.
Little information is available thus far on the useful life of today’s generation of windmills or on the costs that will be incurred for maintaining, repairing, or replacing them in the years ahead.

Furthermore, wind-power generating units are substantially different from fossil-fired and nuclear units in that fossil and nuclear units are generally capable of running if and when needed and, except for peaking units, at higher capacity factors than wind powered units. Wind-powered units are dependent upon availability of wind with sufficient force to drive the windmill at an acceptable speed.

Since owners and operators of wind units cannot guarantee the availability of wind, they — or the organizations buying the power produced by windmills — must make arrangements for backup sources of electricity when wind-based electricity is not available. For this reason, wind-generated electricity has a lower intrinsic market value, and the owner or the organization buying the power must bear the costs of backup power sources. For this reason, part of the cost of backup power should be taken into account when attempting to compare the costs of wind powered electricity with electricity generated from energy sources that have higher availability factors.

Wind energy costs have declined but so too have costs of electricity generated by competing technologies.A recent report by Resources for the Future18 contends that costs of energy from renewable sources have been reduced at rates similar to forecasts made by technology promoters, but costs of alternative sources such as gas-fired generation have declined even more.

The Bottom Line of Wind Power: Subsidized by Taxpayers

Owners and/or operators of windmills enjoy substantial subsidies — paid for by taxpayers or hidden in consumers’ electric bills. These costs should be taken into account when comparing costs of electricity from windmills with electricity produced from other energy sources.

The primary federal subsidy for wind power is a federal tax credit of 1.5 cents per kWh of electricity produced by windmills that was created by the Energy Policy Act of 1992. This tax credit, which is adjusted for inflation, expired on June 30, 1999 but was recently extended to projects begun before December 31, 2001. The tax credit is available for 10 years from the date the facility is placed in service. Even after figuring in inflation, this tax credit was worth 1.7 cents per kWh in 1998. It provides a substantial benefit to windmill owners since the market price for electricity is now and will likely continue to be less than the price that would have to be charged to recover the full cost for electricity produced by windmills. For example, a single 750 kW windmill entering service in 1998 and operating at a 27.5% annual average capacity factor over 10 years would produce about 18,067,500 kWh of electricity and earn a tax credit of $307,148. This amount would increase as the 1.7 cents per kWh increases with inflation.

In addition to the subsidy of their energy output, investments in windmills also qualify for other subsidies. These include a tax break for accelerated depreciation in the form of 5-year, double-declining balance treatment. The Energy Policy Act of 1992 also authorized DOE to make payments of 1.5 cents per kWh of energy produced to “consumer-owned” electric utilities (i.e., generating facilities owned by municipal utilities, state power authorities, and rural cooperatives) for eligible renewable energy sources, including wind. The logic for this subsidy apparently is to give the “consumer-owned” utilities a benefit similar to the federal production tax credit. These organizations are not eligible for the federal tax credits since they are exempt from paying federal income taxes. Like the federal tax credit, the 1.5 cents per kWh is adjusted for inflation and was worth 1.7 cents per kWh in 1998. Spending for this program totaled $2,954,000 in Fiscal Year (FY) 1998 and was estimated at $4,000,000 for FY 1999.19

Like federal and state tax benefits for windmill owners, costs of this subsidy are borne by taxpayers and show up in their tax bills rather than in the monthly electric bills of the people getting the electricity generated by the windmills.

Several states that have passed statutes or issued regulations restructuring the electric industry have imposed per-kWh taxes — usually called “system charges” — on electric customers. Massachusetts, for example, has imposed a tax of 1 mil ($.001) per kWh in 1999 and 1.25 mils ($.00125 in 2000)20 on all electricity sales (except some from municipal light plants). The revenue from this tax is deposited in a trust fund that is to be used to “…support the development and promotion of renewable energy projects.” Similar proposals have been adopted in several other states.

The revenue raised through these taxes can be substantial. In Massachusetts, the tax will produce about $50 million in the year 2000, assuming electric sales in the state of about 50 billion kWh. The cost of this “renewable” energy public benefit charge is borne by consumers.

DOE Wind Energy Research and Development Subsidies

Each year, DOE distributes millions of dollars in the form of direct subsidies (contracts, grants, and subcontracts) for wind energy Research and Development (R&D). Frequently, some of the money finds its way, sometimes indirectly, to advocacy groups that promote wind energy and/or lobby the federal and state officials for more money for wind energy programs.

DOE’s appropriation for wind energy R&D totaled $32,128,000 in FY 1998, $34,359,000 in FY 1999, and was estimated at $32,764,000 for FY 2000. DOE requested $50,783,000 for FY 2001.21

According to DOE’s Wind Energy Program web site, the total cost of the windmill installation at Algona, Iowa, which includes three(3) 750-kW (Zond Z-750) windmills, was $2.8 million. Of this total, $1.3 million was paid with tax dollars flowing through DOE and the remaining $1.5 million was shared by seven Iowa municipal utilities.

A new set of standards being proposed by the Clinton Administration known as “Renewable Portfolio Standards” (RPS) could impose huge costs on electric customers, particularly if adopted in federal legislation. The proposal would:

Require electricity sellers (e.g., distribution companies) to cover 7.5% of their sales with electricity from non-hydro “renewable” energy sources, including wind, by 2010;
Create a system of tradable “renewable” energy credits, including the tracking of each unit of RPS-eligible renewable energy produced; and,
Allow DOE to issue “proxy” credits that would be available for 1.5 cents per kWh to electricity resellers that could not buy renewable energy or credits elsewhere for less than the 1.5 cent price.22
It appears that this proposal would virtually assure that electricity produced from non-hydro renewable energy sources would cost consumers at least 1.5 cents per kWh more than electricity produced from other energy sources, and probably 1.5 cents above the highest cost electricity from other sources. The added cost would, of course, be loaded onto electricity consumers.

Since renewable energy resources are not evenly distributed among states and regions, consumers in areas without such resources will be paying large cross subsidies to those areas with “renewable” resources. As indicated earlier, for example, there are few viable wind energy sites in the southeastern U.S., except along coastlines. Heavily populated states and those that do not want the scenic impairment of windmills will be sending money to regions with wind sources.

Since electricity generated from wind energy costs more than energy from other sources, federal agencies will be spending more for their electricity and providing another subsidy to wind energy producers. Once again, taxpayers will be paying the higher costs.

The military services are among the federal government’s largest energy users. The subsidies for high cost wind energy would take away money that might otherwise be used for national defense requirements, e.g. manpower, missiles, ammunition, weapons, and equipment such as aircraft, ships, and tanks.

Some states have made arrangements for electricity consumers to agree voluntarily to pay more than the “normal” regulated rate or market rate for electricity produced from wind and other non-hydro “renewable” energy. There is no obvious reason to object to these arrangements as long as:

The “volunteers” pay the full cost of producing and delivering the electricity from “renewable” energy sources. “Full cost” as used here includes the costs of producing, transmitting, and delivering the electricity and a fairly allocated share of the cost of backup power that must be maintained to assure that electricity is always available for consumers — even when it is not being produced from “renewable” sources.

Electric customers are provided full and objective information on the true costs and benefits associated with the production and use of electricity from “renewable” sources.

Advocates of electricity from windmills and other non-hydro “renewables” cite opinion polls indicating that many electric customers seem willing to pay more for electricity generated from “renewable” sources. However, experience shows that a much smaller share of electric customers are actually willing to pay the higher costs once “renewable” energy is offered to them at a real-world, higher-than-market price.

Conclusions: Overblown Benefits, Underblown Costs

The preceding analysis of DOE’s “Wind Energy Initiative” underscores why the initiative is truly unrealistic. Achieving DOE’s objective for 2020 would require over 132,000 windmills of the 750-kilowatt (kW) size, operating at an improbably high 27.5% annual capacity factor. Finding sites for such a large number of the large structures would be very difficult, if not impossible.

The full cost of electricity generated by windmills exceeds the cost of electricity generated by using other energy sources. A large share of the true costs are hidden because windmill owners are provided favorable tax benefits and subsidies — the costs of which are being loaded on taxpayers or hidden in consumers’ electric bills.

DOE and other wind energy advocates have pointed to improvements in technology, reductions in the cost of windmill-generated power, and the spate of windmill additions during the past two years as evidence of wind energy’s potential economic competitiveness at some future time.23 Technology has improved but further improvements that would make significant amounts of wind energy truly competitive are in doubt. Significant parts of the “cost reductions” and recent windmill additions are directly related to:

Federal and state tax benefits and other subsidies that shift costs from windmill owners to taxpayers and electricity customers; The scheduled (and now extended) termination date of June 30, 1999 for the 1.7 cent per kWh production tax credit for wind and other qualifying “renewable” energy production; and, State mandates such as those imposed in Minnesota or “renewable standards” that leave no choices for regulated electric companies and shift costs to electric customers.

The Department of Energy has not been forthright in presenting full and objective information about the costs, risks, and benefits of wind energy. Instead, the information DOE and its contractors have provided to the public, the media, and the Congress tends to be incomplete and/or misleading. As a result, expectations about the potential contribution of wind energy appear to be substantially inflated.

One might expect incomplete or misleading information to come from a trade association or other advocacy group. However, such information from a federal agency such as DOE has serious implications because people and organizations that are not in a position to evaluate its validity may rely upon it. Among those who have unrealistic expectations for wind energy are state legislators and public utility commissioners who must make decisions about electric industry restructuring. State officials who are counting on wind energy and other non-hydro renewable energy sources when they create “portfolio standards” may be unwittingly imposing huge costs on electricity consumers in their states.

About the Author

Glenn Schleede is an Adjunct Scholar with the National Taxpayers Union Foundation and a public policy analyst in Reston, Virginia.