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

fond

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.

Drew Thornley on Texas Wind

The Texas Public Policy Foundation is undoubtedly a right wing outfit. its chairman of the board is Dr. Wendy Gramm. If you are from Texas, you probably know who she is. I would not trust Wendy Gramm or The Texas Public Policy Foundation on matters related to ideology, but in matters of fact, I would expect accuracy from that source. The Texas Public Policy Foundation opposes subsidies for wind. I do not see this as an ideological issue. Huge wind subsidies are going to bug bucks Republican backers, like T. Boone Pickens.

The TPPF has looked at the Texas subsidy for wind generated electricity. It has just published a report, Texas Wind Energy: Past, Present, and Future, that is loaded with all sorts of detailed information about the wind Industry in Texas.

For example we have a detailed description of a 1.5 MW Windmill:

• Turbine Weight: 185,000 pounds (92.5tons)
• Tower Weight: 190,000 pounds (95 tons)
• Concrete: 294 cubic yards—439 tons per foundation.

Drew Thornley, the author of Texas Wind Energy states:

The distinction between wind and wind energy is critical. The wind itself is free, but wind energy is anything but. Cost estimates for wind-energy generation typically include only turbine construction and maintenance. Left out are many of wind energy’s costs—transmission, grid connection and management, and backup generation—that ultimately will be borne by Texas’ electric ratepayers. Direct subsidies, tax breaks, and increased production and ancillary costs associated with wind energy could cost Texas more than $4 billion per year and at least $60 billion
through 2025.

Thornley does a good job of characterizing the annual and seasonal unreliability of wind, the notes a report by the Texas Comptroller of Public Accounts. that states:

in 2007 wind accounted for 1.4 percent of electricity generated in July and 4.3 percent in December. Wind accounted for 4.5 percent of the electricity generated in ERCOT in January 2008, compared with 1.9 percent the previous January.

Thornley correctly understands thr impact of inflation on future cost of wind mandated grid expansions:

The projected overnight costs (i.e., capital costs less interest, inflation, and escalation costs due to increased material and labor costs) of these plans are $3.78 billion, $4.93 billion, $6.38 billion, and $5.75 billion, respectively. Because these are overnight cost estimates, they do not include escalating labor and material costs or financing costs during construction. Thus, the installed costs, which will be used to establish future transmission rates, should be considerably higher.

In addition to these transmission cost estimates, collection (or gathering) costs for each scenario are estimated to be $410-530 million, $580-820 million, $720 million-1.03 billion, and $670-940 million, respectively. These, too, are overnight costs. delay other projects, such as construction of nuclear reactors.

Thornley adds

Energy consultant Jeffry C. Pollock quantified the rate impact of future transmission investment on various customers. Taking into account rising material and labor costs, interest/financing costs, and routing issues, the installed cost for CREZ Scenario 2 is estimated to be $7.8 billion ($3,282,828.28 per mile).

Thornley notes hidden cost for wind generation systems including:

• Wind-energy transmission costs;
• Grid-connection and grid-management costs;
• The costs of backing up wind turbines with traditional power sources;
• Lost tax revenues from federal and state subsidies and tax breaks.

Thornley notes another, little noticed. subsidy for wind in Texas:

unlike conventional-power generators, wind-energy providers do not have to pay ERCOT for generation-schedule deviations.† This is no small perk for Texas’ most intermittent energy source, and it distorts wind energy’s price, relative to conventional power prices. The result of this is that non-wind generators, and primarily customers, must bear the cost of ERCOT’s deploying regulation and other reserves when there are large deviations from their schedules. 

Texas Wind Energy contains a very illuminating discussion of recent research on the cost of wind.

Clearly then Drew Thornley has made an important contribution to my case study of Texas wind, and has written a report that adds to our growing body of knowledge about the costs and liabilities of renewable generation of electricity.

A 5 to 7 trillion dollar subsidy to the wind industry?

Yesterday, the Abilene Reporter-News published a guest column by Professor Patricia A. Lapoin of Abilene's McMurry University. The column's title is "There's a price for subsidizing wind energy with taxpayer dollars."

Abilene has good, although not not outstanding wind resources. And wind farms are spring up there. In addition, Abilene is just a Texas hop, skip and jump away from the Texas Panhandle, whose wind resources are considered to be among the best in the country. Thus criticism of wind power, coming from an Abilene source, would tend to go against local interest.

Lapoin, who in addition to teaching Business Administration at McMurry University is the President of P&L Consultants, is an opponent of wind generated electricity for personal reasons. Lapoin lives next to a wind farm in Taylor County, Texas and complains that neighborhood windmills are extremely noisy, are eyesores and generally destroy the the quality of rural life. The huge 421 turbines Horse Hollow Wind Energy Center in Taylor and Nolan Counties comes within a half mile of her home. "The land in Taylor County is forever damaged," Lapoin says.

In yesterday's Abilene Reporter-News, Lapoin laid out an analysis of the US Department of Energy's most recent wind energy report, "20% Wind Energy by 2030". She reports:

"According to a recent report by the National Renewable Technology Laboratory (DOE), wind energy could account for 20 percent of the nation's electricity by 2030. To reach this target, wind turbines would have to produce 300,000 MW of power or 1,000,000 MW installed capacity. The 500,000 plus wind turbines would cost the taxpayers between $5-7 trillion."

Lapoin compares land use with wind, and nuclear:

"For a comparable amount of electricity output, a nuclear power plant requires approximately 50 acres of land vs. 80,000 acres of land for wind farms -- 1,600 times the land usage for wind generated power! For the same or less taxpayer money, why not put those taxpayer dollars into more nuclear power plants and protect our natural environment from the thousands of square miles of industrial wind turbines dotting the landscape?"

I did a brief analysis of some of the assumptions that underlay "20% Wind Energy by 2030," and found that estimates for future cost did not acknowledge the realities of materials inflation, and other factors that would affect wind facilities construction costs.

Key assumptions of "20% wind Energy" are highly questionable. For example it is assumed that the cost of wind estimated to be $1,730/kW in 2005 would remain constant until 2010, and then would decreasing 10% by 2030. This is preposterous. The cost of installing windmills rose to something like $1900/KWh in 2007 and the cost of materials is projected to continue the inflationary pattern of this decade. The assumptions about offshore wind are even more preposterous: $2,520/kW in 2005, decreasing 12.5% by 2030. In fact, the cost of offshore wind projects was closer to $5,800 in 2007 and was rapidly ascending. The expectation of a 12.5% drop in the cost of installing off shore wind facilities by 2030 is a pipe dream. The expectation that there would be a capacity factor improvements about 15% on aveover all wind classes between 2005 and 2030, is unrealistic given the European experience, of declining capacity factors with each new windmill facility.

Professor Lapoin's estimates partially rest on what are extremely unrealistic assumptions by the wind industry. Hence her estimate of a 5 to 7 trillion subsidy required to meet the 20% wind penetration by 2030 goal may be if anything conservative. And that 5 to 7 + trillion dollars subsidy will be expended on an energy generation system that still requires fossil fuel back up, and will produce at most only 20% of our current electrical needs. The 20% wind power idea, fails the "economic rationality" rest.

Update 6/9/08: Mike commented yesterday about the lack of detailed analysis in support of Patricia Lapoin's major contentions. I had already begun an attempt to verify Lapoin's numbers before I saw Mike's comment. My calculations were that given Lapoin's assumptions, I could only find an annual subsidy that was over 100 times smaller than Lapoin's 5 to 7 trillion. This does not mean that she simply tossed out a huge number, or that she does not have such an analysis, simply that she her numbers cannot be verified by my "rough and ready" methods. It would be most desirable if Lapoin has such an analysis that she publish it quickly.