The Institute for Energy Research is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets.

About IER
Latest Analysis
October 8, 2014

Why Are States Reevaluating Wind Energy?

October 8, 2014
Print Friendly
Facebook

As the best wind energy sites have already been used and as wind subsidies decimate state funding, states are reconsidering their stance on what has become industrial wind energy. Opposition is mounting among residents regarding the loss of scenic views, the noise from the wind blades, the lights that shine at night and a lack of public notice about where wind turbines will be erected. States are now considering regulating wind energy as wind farms move closer to more heavily populated areas and are turning the landscape into a “giant industrial complex.” States are also concerned about wind subsidies that could be used for other essential expenses such as schools, highways and prisons.

State Experiences in Wind Energy

Over the last decade, U.S. wind capacity has increased from 6,222 megawatts in 2003 to 61,110 in 2013—that is more than 46,000 turbines, according to the American Wind Energy Association. Texas has the largest wind capacity at 12,354 megawatts, followed by California with 5,829 megawatts and Iowa with 5,177 megawatts.

In Texas, Comptroller Susan Combs urged an end to state subsidies for wind power because while tax credits and property tax limits helped grow the industry, it gives the industry an unfair advantage. According to Combs, “It’s time for wind to stand on its own two feet.”[i]

Oklahoma, another large wind state with 3,134 megawatts of wind capacity, started with three wind farms and 113 turbines a decade ago and now has more than 30 projects and 1,700 active turbines. According to wind developers, more than $6 billion was spent on the construction of wind farms in Oklahoma over the last decade with the turbines valued at as much as $3 million each. The turbines are subject to local property taxes after a five-year exemption, which was designed to offset a lifetime property tax exemption in neighboring Kansas—a state with a wind capacity of 2,967 megawatts.

Oklahoma also offers wind developers tax credits based on per-kilowatt production that can be applied to corporate income tax liability and then sold back to the state for 85 cents on the dollar, for an estimated total of $80 million over the next four years. The wind industry has a dozen registered lobbyists in Oklahoma working to stop new regulations and maintain subsidies that are expected to total $40 million this year.[ii]

The Federal Production Tax Credit

Besides state subsidies and mandates for purchasing renewable energy, the federal government provides wind producers with a production tax credit (PTC)–a subsidy of 2.3 cents per kilowatt hour of wind energy output for the first ten years of the turbine’s operation. (Because the 2.3 cents per kilowatt hour is pre-tax, if the wind producer faces the top 39.6 percent marginal income tax rate, the PTC is worth 3.8 cents per kilowatt hour.)

The PTC has expired and been extended several times. Previously, wind farms had to be placed in service and generating electricity in order to claim the credit. But during the last “one year “ extension in 2013, Congress only required the project to be in the beginning stages of construction in order to be eligible for the tax payments. Later, the Internal Revenue Service (IRS) defined that to be a mere 5 percent investment of the total project cost. That 2013 PTC extension was estimated to cost taxpayers $12 billion.

Recently, however, the IRS lowered the threshold for projects that qualify for the wind PTC. The IRS determined that renewable energy projects could qualify for the PTC if they incurred at least 3 percent of the total project cost before the beginning of 2014, down from 5 percent. [iii]

The IRS did not stop there. The agency also indicated that wind farm projects that generate power before the end of 2015 could claim the PTC.  This meant that any wind farm project that began generating electricity before January 1, 2016 would be eligible. The IRS also indicated that projects that come online after that time might still qualify for the PTC because the decision would be made on a project-by-project basis.[iv] A “one year extension” turned into a 3 year extension for eligibility, and under the PTC, once companies are qualified, they receive payouts for a decade.

Congress is under pressure to extend the PTC again this year. The Senate passed a 2-year PTC extension that would cost taxpayers $13.35 billion.

Besides costing taxpayers money, in some regional electricity markets the production tax credit allows wind power generators to bid their power at zero cost or even below because they still make money from the PTC. That makes other energy sources uncompetitive even though traditional sources can supply reliable energy 24 hours a day, while wind produces energy whenever the wind blows. This has led to the forced closure of nuclear and coal power plants.

Unfortunately, consumers are being misled about the true cost of wind power. Because there is no fuel cost, they believe that wind is inexpensive power. While there are no fuel costs, wind has high non-fuel operation and maintenance costs and capital costs. The capital cost of building new wind facilities is still higher than building a natural gas combined cycle plant, according to the Energy Information Administration.[v]

To see how willing consumers are to pay for the higher capital costs of renewable power, electric utility companies have offered their consumers the option of participating in voluntary “renewable, or green” programs where they have to pay extra for the renewable energy. Participation rates in these programs are low. When IER examined the participation rate in these programs, we found that the average level of participation in surveyed “opt-in” Green Pricing Programs was less than 2.1 percent with two-thirds of all surveyed utilities recording participation rates of 1 percent or less.[vi] Thus, it is clear that consumers do not want to pay extra for renewable power and would prefer affordable energy from the most efficient source their electric utility can provide.[vii]

Wind Blade Failures

Another troubling issue for the states is that these industrial wind facilities are seeing higher failure rates than predicted. A recent study found that there are about 3,800 wind blade failures a year with costs as high as $1 million. Wind manufacturers are under increasing pressure to deliver cost competitive technology resulting in larger turbines with minimum unscheduled downtime and longer, lighter rotor blades. The frequency and severity of blade failures varies from country to country, and they result from lightning damage, manufacturing defects, and human error.[viii]

North Dakota Looks into Wind Decommissioning

The North Dakota Public Service Commission (PSC) recently began the process of reviewing decommission plans for wind farms that have reached their 10-year mark. Four such projects have hit that mark.[ix] The PSC requires companies whose turbines are on property owner’s land to issue a guaranty that they would finance the decommissioning and land restoration process, following specific guidelines.

One company, FPL Energy, estimated a 35-year project life for its turbines, after which the total cost of decommissioning and restoration of the wind sites is expected to be around $3.39 million.

Another wind facility, Cedar Hills, located in Bowman County, North Dakota–a wind farm of 13 turbines—has submitted its decommission plan despite its fairly recent construction. The turbines are owned and operated by Montana-Dakota Utilities Co., a division of MDU Resources Group. The turbines, which went operational in June 2010, have a useful life of 20 years, and will be decommissioned around 2030. The site is located on privately owned agricultural land. The decommission is to include the removal of all turbine components and associated transformers, removal of the collector circuit components to a depth of four feet below grade and removal of all wind project related substation components. Any components or structures extending beyond four feet below the ground would remain after decommissioning. Grading and seeding is to occur where subsurface infrastructure is removed. The decommission project is estimated to cost $960,700. Those 2010 prices, however, could change once the site enters the decommissioning process in less than two decades. Components and material removed from the site is to be transported to appropriate facilities for reconditioning, salvage, recycling or disposal.

Conclusion

Wind advocates justify the taxpayer wealth transfers to the wind industry using the “infant industry” argument. But, wind energy has been around since the 19th century and the federal wind production tax credit has been around since the early 1990s. Historically, wind power was rejected because it was not competitive with traditional electric generating technologies, and could not be relied upon to produce electricity when needed. It has prospered recently only because the Obama Administration is fixated on renewable energy providing subsidies, loans and grants to renewable industries and because many states have mandated its production and provided additional large subsidies and tax credits. But, the fact of the matter is that wind tax credits and subsidies kill jobs elsewhere in the economy, raise the cost of energy (especially on the middle class), and make millions for lobbyists whose job is to continue to fight for the large subsidies, mandates, and tax credits. Now they are exerting their influence in activist groups and getting even more involved in politics.[x]

[i] Associated Press, A Decade After Welcoming Wind, States Reconsider, October 1, 2014, http://hosted.ap.org/dynamic/stories/U/US_RECONSIDERING_WIND_POWER?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT

[ii] Ibid.

[iii] Daily Caller, Obama Uses His Infamous Pen for Green Energy Cronyism, September 2, 2014, http://dailycaller.com/2014/09/02/obama-uses-his-infamous-pen-for-green-energy-cronyism/#ixzz3CFpPDkmE

[iv] Forbes, The IRS Is Giving Away $13 Billion A Year in Wind Energy Subsidies, Without Congressional Authorization, September 2, 2014, http://www.forbes.com/sites/realspin/2014/09/02/the-irs-is-giving-away-13-billion-a-year-in-wind-energy-subsidies-without-congressional-authorization/

[v] Energy Information Administration, Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014, May 7, 2014, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

[vi] Institute for Energy Research, IER Examines Green pricing Programs, June 17, 2013, http://instituteforenergyresearch.org/press/ier-examines-green-pricing-programs/

[vii] Daily Caller, The Wind Production Tax Credit: Bad Policy, Bad Politics, September 10, 2014, http://dailycaller.com/2014/09/10/the-wind-production-tax-credit-bad-policy-bad-politics/#ixzz3D0apC6sD

[viii] North American Clean Energy, GCube Scrutinizes Blade Breakages, http://www.nacleanenergy.com/articles/18566/gcube-scrutinizes-blade-breakages-specialist-renewable-energy-insurer-analyses-causes-frequency-of-wind-turbine-blade-failure-in-new-report

[ix] Bowman County Pioneer, State delves into new issue of wind farm site decommissioning; sets big precedent; September 12, 2014, http://www.bowmanextra.com/2014/09/12/state-delves-new-issue-wind-farm-site-decommissioning-sets-big-precedent/

[x] Washington Times, The league of crony voters, October 6, 2014, http://www.washingtontimes.com/news/2014/oct/6/editorial-the-league-of-crony-voters/

 


View Comments
Back to top