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DOE's Wind Energy Initiative: An Unwise Tilt Towards Windmills

NTUF Policy Paper 126

by
Glenn R. Schleede

Mar 1, 2000

Executive Summary

On June 21, 1999, US Secretary of Energy Richardson proudly announced a new "Wind Energy Initiative" that calls for obtaining 5% of the nation's electricity from windmills by the year 2020. This initiative is part of the Department of Energy's (DOE) effort to promote "renewable" energy.

The purpose of this analysis is to assess whether the objective announced by DOE for 2020 is realistic, to identify key factors including availability of acceptable sites and environmental considerations that are likely to determine whether the objective is realistic, to identify costs, including hidden costs, that are imposed on consumers and taxpayers, and to evaluate DOE's actions to date relating to its "Wind Energy Initiative."

Introduction: Current Capacity and Future Forecasts

The goals that the Energy Department has set for its wind initiative are as follows: first, to supply at least 5% of the nation's electricity needs by 2020 with more than 5,000 megawatts of wind energy installed by 2005 and 10,000 megawatts on line by 2010, second, to double the number of states which have more than 20 megawatts of wind capacity to 16 by 2005 and triple the number to 24 by 2010, and third, to increase the federal government's use of wind-generated electricity to 5% by 2010.

The Energy Information Administration's (EIA) Annual Energy Outlook 2000, issued in December 1999, estimates that total electricity generation in the US in the year 2020 will total 4,782 billion kWh.¹ Based on EIA's forecast, Secretary Richardson's goal would mean that 239.1 billion kWh of electricity would have to come from windmills in the year 2020.

Among the largest windmills now in operation in the US are 750-kilowatt (kW) models (e.g., the Zond Z-750). Three of these windmills are now operating near Algona, Iowa and two near Springview, Nebraska. In theory, a 750-kilowatt windmill could produce 6,570,000 kilowatt-hours (kWh) of electricity in a year -- but only if wind conditions were always adequate (strong enough but not too strong) to run the windmill at its full rated capacity. In fact, wind conditions vary widely during each day, seasonally and depending upon weather conditions in the area.² However, at best, windmills are expected to have "capacity factors" (i.e., percentage of theoretical output actually produced) in the range of 25% to 30%. For purposes of this analysis, the midpoint of 27.5% capacity factor will be used.³ Based on this generous assumption, one of the 750 kW windmills could be expected to produce 1,806,750 kWh of electricity each year.

Estimating the number of windmills that would be required to meet DOE's objective of 5% of total US electricity production in 2020 merely requires dividing the electricity output goal by the output assumed for the single 750 kW model windmill used in this illustration. Specifically:

239,100,000,000 kWh ÷ 1,806,750 kWh = 132,337 windmills

Assumptions different from those used above would, of course, yield a different conclusion on the number of windmills required to meet DOE's objective. For example, in August 1999, four demonstration windmills (Vesta V-66 models), even larger than the 750 kW models, began operation near Big Springs, Texas. These have a rated capacity of 1,650 kilowatts each, more than double the 750 kW models used in the above illustration. A 1,650 kW windmill operating at 27.5% annual capacity factor would produce 3,974,850 kWh per year. Thus, only 60,153 of these larger windmills would need to be in operation in 2020 to meet DOE's objective. One could assume that national average capacity factors for all windmills operating in 2020 would be higher or lower than the 27.5% factor assumed in the 750 kW illustration. Specifically, if a 30% national average capacity factor were used, the number of 750 kW windmills required would be 121,309. If a 25% national average capacity factor were used, 145,571 windmills would be required. If a 20% national average capacity factor ⁴ were used, 181,963 windmills would be required.

Goals vs. Reality

The following chart shows EIA data on the sources of energy for electricity generated in the US in 1998 and EIA's latest forecast of energy sources for electricity for the year 2020.⁵

EIA expects that wind will provide 12.09 billion kWh of electricity in 2020 (12,090,000,000 kWh), or .25% of the US total of 4,782 billion kWh. This estimate takes into account the fact that some states have established minimum shares of electricity sales that must be provided from "renewable" sources. As indicated earlier, DOE's announced objective is that wind should provide 5% of US electric generation or 239.1 billion kWh in the year 2020. Thus, DOE's objective for 2020 is nearly 20 times the amount of electricity that the independent EIA expects in its latest "Reference" case forecast for 2020.⁶

Source: Energy Information Administration

DOE and wind energy advocacy groups argue that windmills offer the potential to displace electric generating units that are dependent on other energy sources that they consider less environmentally acceptable, particularly nuclear energy, fossil fuels, and hydropower. The table below shows the number of 750 kW model windmills operating at a 27.5% capacity necessary to replace generating units of various types and sizes.

To make the illustration more graphic, the actual 1997 electricity output from several existing generating units are used in the table below. Some of these plants have been

criticized for adverse environmental impact. Others are located in states where windmills have recently been built. Also, three gas-fired units similar in size to those now being built in several regions are used as illustrations.

In fact, such a comparison treats windmills more favorably than would be expected in a real world situation because wind-generated electricity is available only when wind conditions are within acceptable limits. Electricity from the other energy sources is available whenever the plants themselves are operational, which is generally at all times unless out of service for maintenance or repair.

Not Without Costs: The Drawbacks of Wind Power

Proponents of wind-powered electric generation place major emphasis on its potential for displacing electricity generated by coal, oil, or natural gas and, therefore, avoiding emissions associated with the burning of fossil fuels. Unfortunately, DOE and various wind energy advocacy groups tend to ignore or gloss over the adverse environmental effects associated with wind power and pretend that it is an environmentally benign energy source.

A windmill that produces significant amounts of electricity must be very large. For example, the 750 kW model windmills recently built in Iowa and used in the earlier illustrations have towers that are 213 ft. tall and rotor blades that sweep in a diameter of 164 ft. Thus, the total height -- from the ground to the end of the blades at their highest point -- would be about 300 feet. The height of one of these new windmills is almost equal to the height of the US Capitol building measured from the ground to the top of statue on the Capitol dome (300 feet). A different perspective is that these windmills are twice the height of the Statue of Liberty.

Substantially larger are the four 1,650 kW (Vesta V-66) models that began operation near Big Springs, Texas in April 1999. These have towers of about 275 feet, blade diameter of 216 feet, and total height of about 370 feet.

Somewhat smaller in size are the 42 windmills that began operation near Big Springs, Texas in December 1998 (Vesta V-47 models). These have a rated capacity of 660 kilowatts, towers 213 feet tall, and blade diameters of 154 feet, for a total height of about 270 feet.

Smaller still are the 107 windmills located near McCamey, Texas that were dedicated in July 1999. The units, built on a 600 foot-high mesa, are rated at 700 kW each, have 160 foot towers and blades with a diameter of 157 feet, and a total height of about 240 feet.

Building several hundred of these windmills may not be a problem in remote parts of those states having the required wind conditions. Their presence in these sparsely populated areas may be acceptable to neighbors, communities, public officials, and environmental advocacy groups. Where sufficient land is available, landowners and neighbors may be willing to put up with adverse visual impacts if they receive sufficient rent, sufficient tax payments for local governments, or other financial inducements. Unfortunately for DOE, finding places to build the more than 100,000 of these windmills required to achieve the goals of its wind initiative is likely to be more difficult.

The visual impact of very large windmills, such as the 660, 750, and 1,650 kW models, is probably the most difficult problem that will be faced by those seeking to find acceptable sites. Some people who live near windmills have complained that shadows and "strobe light" effects shortly after sunrise and before sunset are annoying.⁸ Visual effects apparently are less of a problem in some areas. As indicated above and in Attachment #1, large "wind farms" are now in operation in Texas, Iowa, and Minnesota, and several have been in operation for some time in California.⁹

One drawback to windmills recognized by the DOE is the large number of birds that have been killed by flying into moving blades. Some studies suggest that the movement of the deadly blades may attract birds. Bird kills have led to serious objections from some environmental groups, particularly in California where condors -- which are among species classified as endangered -- have been killed.

A web site maintained by the National Wind Technology Center (NWTC), an organization funded with tax dollars flowing through DOE to the National Renewable Energy Laboratory (NREL), provides information on "Avian Issues." That site stated that: "There are two primary issues: 1) effects on bird populations from the deaths caused by wind turbines, and 2) violations of the Migratory Bird Treaty Act or the Endangered Species Act, or both, if even one bird from a protected species is killed." Web page visitors are then assured NREL is working with others to "address the issue." In a less candid statement, the NWTC suggests visiting the Avian Literature Database for abstracts of other studies about "avian-wind turbine interactions."

Noise created by windmills is another potential drawback to their widespread use. However, wind energy advocacy groups indicate that technological progress has been made in reducing noise and that the sound of wind is often louder than the noise created by windmills.

Another drawback for windmills is that new transmission lines would be required to move electricity from generating sites to the points where it is used (commonly referred to as load centers). Two issues should be noted. First and foremost, new transmission lines often face opposition from landowners, neighbors, environmental groups, and political leaders. This may not be a problem if acceptable windmill sites are found near existing transmission lines; however, new transmission lines will be needed if large numbers of windmills are constructed. Also, sites that are acceptable for windmills will often be remote from load centers.

Rural Sprawl? Finding Sites for Windmills

The question of where to locate all these windmlls is pertinent because building enough of them to have over 132,000¹⁰ in operation in the year 2020 will be a formidable undertaking. The size, number, and amount of land needed for wind farms is likely to face opposition in populated, protected, scenic, recreational, and other areas. Factor in the limited number of locations where the wind conditions are present for the efficient operation of large windmills, and the number of sites available diminishes.

As indicated earlier, the height of the windmills now being built -- many are 300 feet tall, or more -- will limit their acceptance in many areas. However, many significant wind farm installations have been completed during the past two or three years and have begun operation. Attachment #1 provides examples of these installations, but little information is available on the total land area required.

The total land area required for a wind farm varies because requirements differ widely depending on:

• Wind conditions;
• Terrain;
• Size and height of windmill;
• Requirements for related facilities such as on-site energy collection and control equipment, switchyards and substations, transmission lines, maintenance and support facilities, and access roads;
• Distance required between windmills because of their wind requirements and the fact that wind flow patterns affect other nearby windmills; and
• Need for buffer zones between the windmill site and neighbors' land.

Information on the Enron Wind Corporation web site indicates that "One turbine needs about 2 acres of land."¹¹ The American Wind Energy Association (AWEA) cites a figure of 1/4 acre per windmill. Presumably these numbers do not include the space required for ancillary facilities listed above, windmill spacing, or buffer zones. If only 2 acres of land were required for each windmill, about 265,000 acres would be required for the 132,000+ windmills of the 750 kW size used as an illustration earlier in this analysis. That's not much land area in a nation as vast as the US. Finding enough land will certainly be a difficult task once wind conditions, windmill size, current land use, and political factors are taken into account.

In an unusually candid statement about required wind conditions, DOE's "Wind Energy Program" web site includes the following:

When the wind blows between 16 miles per hour and 60 miles per hour, wind turbines can generate electricity. When the wind doesn't blow, or blows too hard, the turbines can't generate electricity. Unfortunately, the wind doesn't always blow when electricity is needed. Batteries can store only a modest amount of electricity to be used when the wind doesn't blow.

DOE has funded research by the Pacific Northwest National Laboratory (PNNL) to characterize wind conditions throughout the United States. PNNL has produced a Wind Energy Resource Atlas that can be accessed through various web sites (e.g., http://rredc.nrel.gov/wind/pubs/atlas/). The following excerpts describing the maps in Chapter 2 of the Atlas make clear that several factors must be considered in determining the suitability of potential sites for windmills:

The wind resource maps estimate the resource in terms of wind power classes … ranging from Class 1 (the lowest) to Class 7 (the highest). Each class represents a range of mean wind power density …or equivalent mean wind speed at the specified height(s) above ground. Areas designated Class 3 or greater are suitable for most wind turbine applications, whereas Class 2 areas are marginal. Class 1 areas are generally not suitable, although a few locations (e.g., exposed hilltops not shown on the maps) with adequate wind resource for wind turbine applications may exist in some Class 1 areas. (Note: Other literature sources seem less confident about the potential suitability of Class 3 areas.)¹²

The wind power estimates apply to areas free of local obstructions to the wind and to terrain features that are well exposed to the wind, such as open plains, tablelands, and hilltops. Within the mountainous areas identified, wind resource estimates apply to exposed ridge crests and mountain summits.

Local terrain features can cause the mean wind energy to vary considerably over short distances, especially in areas of coastal, hilly, and mountainous terrain. Although the wind resource maps identify many areas estimated to have high wind resource, the maps do not depict variability caused by local terrain features.

This wind resource atlas was not intended to deal with variability on a local scale, but to indicate areas where high wind resource is possible. An example of a high wind resource area where considerable local variability occurs is Altamont Pass, California, an area where thousands of wind turbines have been installed. The national wind resource map depicts this area of high wind resource (which appears very small on the national scale map) but does not indicate the local variability which occurs within the area.

The following map, taken from the Atlas, is not large enough as shown here to reveal all the details. (more detail can be seen by visiting the web site.) However, it does give a general idea of the areas where wind conditions are best suited for potential wind energy production. In general, the darker the areas appear, the more likely that some sites might be found that might be suitable.

Even this small map shows, for example, that wind conditions are unlikely to be suitable in most southeastern states (except along coast lines) or in Arizona (see next page).

Additional wind resource mapping is underway at the National Renewable Energy Laboratory (NREL) which appears to be directed toward more finely tuned estimates than those presented in the Atlas.¹³

Developers of energy production and transportation facilities have learned that they are not welcome in many places in the United States. This Not in My Backyard (NIMBY) attitude has thwarted hundreds of energy projects. Presumably NIMBY will also impede many windmill projects, particularly because of their large size, the large numbers required to make a significant contribution to electricity production, and the negative visual impact of large numbers of windmills and windmill farms.

The fact that areas with sufficient wind are often among America's prized scenic or recreational areas (e.g., in mountains and mountain gaps, along seashores, and the shores of the Great Lakes) may prove an impediment to windmill projects. Whether people living in or visiting these areas will permit the construction of large numbers of windmills remains to be seen.

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.

Attachment #1

Examples of Significant Wind Energy Projects that Became Operational During 1998 and 1999

Notes

1 EIA, Annual Energy Outlook 2000, Reference Case, Table A8, p. 130.

2 According to the handbook, Permitting of Wind Energy Facilities, published by the Wind Energy Committee, "A wind turbine's blades typically begin spinning as wind speed reaches approximately seven miles per hour (mph). At nine to ten mph ('cut in' speed), they will start generating electricity. Rated output is usually reached in 27 to 35 mph winds. To avoid damage, most turbines automatically shut themselves down when wind speeds exceed 55 to 65 mph ('cut out' speed). Because wind is intermittent, wind turbines will seldom operate at their rated output for long periods of time."

3 Some people doubt that capacity figures this high will be typical or a realistic national average for windmills.

4 Not an outrageous assumption since the better sites for windmills would likely be occupied before such a large number of windmills was constructed.

5 EIA, Annual Energy Outlook 2000, December 1999, Tables A8 and A13.

6 EIA also included in its latest forecast (AEO 2000) separate "side" forecasts based on assumptions that would increase the role of "renewable" energy sources. In one side case, EIA assumes that costs of producing electricity from renewable energy sources will be substantially lower and that capacity factors would be substantially higher than assumed in EIA's reference case. In another side case, EIA assumes that so-called "Renewable Performance Standards" (RPS) will be adopted nationally which would require that certain percentages of electricity be generated from renewable sources, regardless of the expected higher costs. In these "side" cases, wind makes a substantially higher contribution to US electricity production. See AEO2000, page 72 and Table F11 and F12.

7 Data source: Energy Information Administration, Electric Power Monthly, April 1998.

8 Wewaunee County, WI, neighbors' complaints reported in Merchant Power Monthly, October 1999, p. 6

9 Many windmills were built in California in the early 1980s but these were much smaller than today's models. These older windmills in California are being replaced ("repowered") with fewer, larger windmills.

10 As indicated earlier, fewer than 132,000 might be required if the average size was greater than 750 kW and/or they operated at an average capacity factor greater than 27.5%.

11 This same reference also indicates "But, the good news is that land can still be used for farming and grazing."

12 D.L. Elliott and M.N. Schwartz, Pacific Northwest Laboratory, "Wind Energy Potential in the United States," September 1993, NTIS No. DE94001667.

13 See, for example, M. Schwartz, "Wind Resource Estimation and Mapping at the National Renewable Energy Laboratory," a paper presented at a conference held in Portland, ME, June 12-16, 1999. (Available on NREL web site.)

14 EPRI, Renewable Energy Technology Characterizations, TR-109496, December 1997.

15 EIA, Issues in Midterm Analysis and Forecasting 1999 - Modeling the Costs of U.S. Wind Supply," T.W. Petersik.

16 Occasionally, spikes in the price of oil and gas could make electricity generated from those sources more expensive temporarily than wind.

17 The more cynical among us may consider these types of payments as "bribes" or "extortion."

18 James McVeigh, Dallas Butraw, Joel Darmstadter, and Karen Palmer, Resources for the Future, Winner, Loser or Innocent Victim: Has Renewable Energy Performed as Expected?, March 1999.

19 DOE, FY2000 Congressional Budget Justification.

20 Section 20, Chapter 164 of the Acts of 1997, Commonwealth of Massachusetts. The rate declines after 2000.

21 DOE, FY2001 Congressional Budget Justification.

22 DOE explanation of the Administration's proposed "Comprehensive Electricity Competition Act," May 1999.

23 For example, DOE Press Release, "Richardson Unveils National Wind Energy Initiative," June 21, 1999.

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