Sunday, February 14, 2010

Glenn Schleede on Subsidies for Cape Cod Wind

Glenn Schleede is making important points about wind subsidies over the last decade, and the public should be listening to what he says. Mr Schleede has repeatedly argued that:
The true cost of electricity from wind energy is much higher than wind advocates admit. Wind energy advocates like to ignore key elements of the true cost of electricity from wind, including:
* The cost of tax breaks and subsidies which, as indicated above, shift tax burden and costs from “wind farm” owners to ordinary taxpayers and electric customers.
* The cost of providing backup power to balance the intermittent and volatile output from wind turbines.
• The full, true cost of transmitting electricity from “wind farms” to electric customers. “Wind farms” are highly inefficient users of transmission capacity. Capacity must be available to accommodate the total rated output but, because the output is intermittent and volatile, that transmission capacity is used only part time. The wind industry seeks to avoid these costs by shifting them to electric customers.
* The extra burden on grid management.

In response to a report on the Cape Wind project prepared by the Charles River Association, Schleede disagreed with the claims,
Adding Cape Wind would lead to a reduction in the wholesale cost of power averaging $185 million annually over the 2013-2037 time period, resulting in an aggregate savings of $4.6 billion over 25 years.

With Cape Wind in service, over the 2013-2037 time period, the price of power in the New England wholesale market would be $1.22/MWh lower on average.
Schleede argues in a letter to the Editor of the Cape Cod Times posted yesterday on MasterResources
Frankly, the numbers in the slick 9-page “consultant” study released by the developer of the Cape Wind project of $4.6 billion in savings over 25 years just don’t add up ,
Schleede notes,
The true cost of electricity from wind – particularly offshore wind — is huge. No one who is paying attention expects the price that Cape Wind charges for its electricity to be cheap. In fact, over 25 years, the wholesale cost to New England utilities for electricity from Cape Wind apparently will be well over $5.75 billion and probably much more.

The arithmetic is simple: The CRA “study” (table 1, page 6), shows that the developer expects to produce about 1,150,000,000 kilowatt-hours (kWh) of electricity per year. If utilities are forced to pay even $0.20 per kWh, the utilities cost over 25 years would be $5.75 billion. [1] The cost would be $6.9 billion if utilities have to pay the $0.24 per kWh that NatGrid apparently agreed to pay for electricity from the planned Rhode Island offshore “wind farm.”
Does anyone in New England seriously expect that the WHOLESALE price of non-Cape Wind electricity in New England will average $0.20 or $0.24 per kWh over the next 25 years (up from about $0.08 per kWh in 2008.
Schleede also noted that the CRA study was flawed by a choice to use old rather than newer data, a doubtful assumption that a Federal tax of $30 to $60 per ton charge on carbon emissions. Finally the CRA study failed to account for many hidden costs of the Cape Cod wind project, including the cost of building transmission lines, for the Cape Cod Wind project, and the costs of various Federal and State Tax breaks, which ammounts to a huge subsidy for the Cape Code wind project. These Breaks include
a. Production tax credit (PTC). The Cape Wind project owners would be eligible to receive a federal tax credit, currently $0.021 per kWh for electricity produced during the first 10 years of the project life. Using the production apparently expected by Cape Wind (1,150,000,000 per year) a $0.021 per kWh credit (which is adjustable for inflation), would permit the owners to avoid federal corporate income taxes of $24,150,000 per year or $241,500,000 over 10 years.

The recent federal “stimulus” legislation– The American Recovery and Reinvestment Act of 2009–gives “wind farm” developers the option of selecting an investment tax credit in lieu of the PTC or electing to receive from the US Treasury a cash grant equal to 30% of eligible capital costs! Again, ordinary taxpayers pick up the tab.

b. Accelerated depreciation. “Wind farm” owners are also permitted by the IRS to use the lucrative “5-year double declining balance accelerated depreciation” (5-yr; 200%DB) to recover the capital costs from their otherwise taxable income. Depreciation deductions would permit the owners to avoid $490 million in federal corporate income taxes – in addition to the Production Tax Credit – again shifting the tax burden to ordinary taxpayers.

c. Additional [state] tax break
Thus the Cape Cod Wind Project is assured of at least a $730 million dollar subsidy from the Federal government, half of its total costs. In addition,
a study by the Beacon Hill Institute at Suffolk University
Massachusetts green credits, totaling $1.7 billion over the entire 25-year lifespan [projected Cape Wind generator lifespan], would be worth $487 million.
Despite this huge subsidy, Jay Fitzgerald reported to Boston Harold readers,
National Grid customers will experience sticker shock after the giant utility negotiates a long-term electric contract with Cape Wind developers, energy experts warn.

Business groups worry that a National Grid contract with Cape Wind, which needs a long-term deal to secure funds to build a giant wind farm off Cape Cod, could add tens of millions of dollars per year to electric bills.

They point to a recent price agreement between National Grid and a Rhode Island wind-farm developer as cause for alarm.

The Rhode Island deal calls for National Grid to pay an eye-popping 24 cents per kilowatt hour for electricity from Deepwater Wind’s proposed wind farm off Block Island for 20 years. That’s three times higher than the current price of natural-gas generated electricty – and the Rhode Island deal includes a 3.5 percent annual price increase over the life of the contract.

Rhode Island officials have estimated the small Deepwater contract will add about $1.35 per month in the first year to an average residental customer’s bill – and it will add far more to the bills of big energy-using companies.

Analysts say a Cape Wind contract could come in at about 15 cents per kilowatt hour – about twice as high as current prices for natural-gas generated electricity.

“It’s still double the price – and the ratepayers will be picking up the tab for it for 20 years,” said Robert Rio, a senior vice president at Associated Industries of Massachusetts.

One source, who supports the Cape Wind project, said officials are hoping National Grid can negotiate a price at about 12 to 14 cents per kilowatt hour in the first year – but that’s still far above today’s 6 to 8 cents for natural-gas generated electricity.

Dennis Duffy, a vice president at Cape Wind, cautioned that the price of natural gas is volatile and was much higher only a few years ago, before the global recession dramatically reduced energy prices.

Cape Wind stands by its assertion that it will eventually save customers an average $25 million a year, when the long-term advantage of free wind starts to exert competitive pressure on other power generators, Duffy said.

The $1 billion-plus price of building and installing Cape Wind’s 130 giant turbines on Nantucket Sound will have to be paid for, he said. But the long-term price and environmental benefits of wind farms will a huge plus, he said.

Peter Beutel, an analyst with Cameron Hanover, said he agrees wind farms are “worthwhile in the long run” for energy markets.

“But can I justify (wind energy) financially today? No I can’t,” he said.
The hoped for 12 to 14 cents per kWh for heavily subsidized Cape Wind electricity must be contrasted with a statement which the American Wind Energy Association made in an attack on Schleede,
“The cost of electricity from new wind plants is competitive with the cost of new conventional power plants, when the federal wind energy production tax credit is taken into account,”
Glenn Schleede describes himself as simi-retired, but he is a member of a growing band of mature, highly competent Americans, who have stepped forward, to question Renewable Energy Industry claims, and government backed tax payer and rate payer ripoffs, based on inaccurate and often outright dishonest "Cargo Cult" claims about the renewable energy, Because Schleede has been both a tireless and effective critic of the renewable industry, he has been and its government flunky, National Renewable Energy Laboratory, has attempted to smear him for his one time association with the Coal Industry. In a letter to Dr. Richard Truly, Director National Renewable Energy Laboratory, Schleede charged,
It has come to my attention that an employee of the National Renewable Energy Laboratory (NREL), Mr. Larry Flowers:
1. Asserted, during public “forums” on wind energy held on March 25, 2003, in Ludington, Michigan, that I am in some way associated with the coal industry and, therefore, my analysis and writing concerning wind energy should not be considered credible. Over 150 people attended these public forums.
2. On March 27, 2003, distributed via email to one or more participants in the Ludington forums the attached undated, unsigned paper which questions the independence of my work, questions the truthfulness of my claim that my work on wind energy is self-financed, and makes other false and misleading statements. Mr. Flowers’ email forwarding the paper includes the following statement: “MI wind colleagues: here is a brief piece written in response to Glen [sic] Schleede misinformation. I suggest you distribute this to participants in the Ludington meeting...”
In fact, the Flower's email was a propaganda attack on Schleede, written by the American Wind Energy Association (AWEA).

Glenn Schleede is in fact a distinguished member of the growing company of wind skeptics. He is an Air Force veteran, who served the Federal Government in a number of capacities, includes employment with the Atomic Energy Commission, The Bureau of the Budget [Later called Office of Management and the Budget], Science and Technology, Natural Resources Environmental Branch, and with White House Domestic Council as assistant to Michael Raoul-Duval, associate director for natural resources. From May 1974-January 1977 Mr. Schleede was the Assistant Director for Energy and Science of the White House Domestic Council. He was Senior VP of the National Coal Association, vice president of New England Electric System (NEES) and president of its fuels subsidiary, New England Energy Incorporated, and President of Energy Market and Policy Analysis, Inc. (EMPA), a Virginia-based consulting practice.


DW said...

Excellent post, Charles. This is a very useful set of data.

Interesting comments about "savings". Here is how that is "supposed to work". It is true that during high-wind energy days, subsidized wind *can* have the effect of lowering 10 minute and 1 hourly-ahead prices by forcing down CCGT or SCGT runs that use expensive natural gas. Slighty, anyway, maybe on occasion, a lot.

But the rate payer, NEVER sees that savings passed along, that difference belongs to the utility provider and while in some cases they are forced to 'return' some of that in lower, incremental cases, to the ratepayer, it's a 'savings' that disappears before it every gets to one's electric bill.

Most power is not contracted on a 10 minute or 1 hour ahead schedule. The majority is day ahead scheduling. No ISO would ever consider much wind to be scheduled a day ahead...especially, oddly, in very high wind days as the upper limit on wind speed causes wind mill operators to 'furl the sails' so to speak to avoid damage to blades and reduction gear bearings.


Anonymous said...

This blog has some interesting data on the inefficiency created by integrating wind into the grid.

John Tjostem


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