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Tax-blowing boondoggle: don’t give wind energy more credit than it deserves 

Credit:  Larry Bell, Contributor | Forbes | 11 December 2012 | www.forbes.com ~~

Wind power producers currently receive a production tax credit (PTC) of 2.2 cents per kilowatt-hour, a subsidy that it needs to “compete” in the electrical power marketplace. A bipartisan group of lawmakers in Congress is pushing to extend it. In the past it has been renewed for one or two-year periods. Supported by President Obama, the Senate Finance Committee has approved a plan to do this again.

Since first adopted in 1992, the “temporary” Production Tax Credit (PTC) for wind energy has ballooned from $5 million per year in 1998, to over $1 billion annually today. And even if ended, taxpayers are still obligated to cover nearly $10 billion in tax credits for projects built during the last decade. That’s in addition to an almost $20 billion debt for wind projects eligible under the Section 1603 extension, the renewable energy bailout of 2011. In many parts of the country the PTC actually exceeds the wholesale price of power.

In a September Democratic National Convention speech, President Obama declared that “…thousands of Americans have jobs today building wind turbines.” Thanks to PTC, direct taxpayer handouts, and mandates for renewable electricity production that dramatically hike consumer prices, those jobs haven’t come cheaply.

Figures provided by the Joint Committee on Taxation, the non-partisan congressional entity established in 1926 to assist legislators on tax-related matters, extending PTC without other preferential industry perks will at an estimated $12.18 billion from 2013 to 2022. Between 2009 and 2013, federal revenues lost to wind power developers amounted to about $14 billion, including $6 billion from PTC and another $8 billion from an alternative energy subsidy in the Obama stimulus package.

Wind and solar each receive more than 50 times more subsidy support per megawatt hour than conventional coal, and more than 20 times more in terms of average electricity generated by coal and natural gas. According to a 2008 Energy Information Agency (EIA) report, the average 2007 subsidy per megawatt hour for wind and solar was about $24, compared with an average $1.65 for all others.

Navigant Consulting of Chicago has estimated that the end of the PTC could ultimately cost 37,000 jobs throughout the wind power industry out of about 75,000 presently existing. So what will saving of those jobs through a PTC extension cost?

Comparing the taxpayer costs per job for wind vs. the oil and gas sector, Manhattan Institute Senior Fellow Robert Bryce estimates the former to be 15 times more. He arrived at this number by dividing the PTC $12.18 billion extension by 37,000 jobs purported to be saved per year spread over a decade, amounting to $32,900 per job annually. Then, applying March Congressional Budget Office figures putting tax preferences extended to the fossil fuel sector at a total of about $2.5 billion per year, along with an American Petroleum Institute estimate that the oil and gas sector employs 1.2 million people (not including service stations), that works out to $2,100 per job, per year.

In 2010, Texas State Comptroller Susan Combs put the taxpayer burden on each wind-related job at a much higher…$1.6 million. And Texas is a state with more wind energy production capacity than any other.  And if you think that this is bad, Bryce points out that, in addition to PTC, a Shepherds Flat wind project in Oregon backed by General Electric, Google and other companies that is receiving a $490 million Federal Government cash grant will create only 35 permanent jobs, each costing about $14 million. Even counting 400 temporary construction jobs and counting them as permanent ones will calculate out as $1.1 million per job.

Anticipating a PTC demise, Siemens AG, a global leader in wind turbine manufacturing, has announced plans to cut more than 600 positions, about 37% of its wind-turbine manufacturing jobs.  The reductions include 407 jobs at its Fort Madison, Iowa blade factory, and 147 at its Hutchinson, Kansas factory. Although Siemens doesn’t receive a production tax credit, its expiration is expected to reduce customer demands. The company also attributes the layoffs to low natural gas prices and sluggish electricity demand.

Katana Summit LLC, a Nebraska-based manufacturer of wind-turbine towers is another prospective free market failure. The company plans to shut down operations entirely shedding 300 jobs if it can’t find a buyer.

Of the stimulus grants so far, more than 80% have gone to wind farms (covering up to 30% of all project costs). A Meadow Lake wind development project in Indiana that is owned and operated by Horizon Wind Energy received $276 million. Horizon is a wholly owned subsidiary of EDP Renovaveis, a Portuguese company. The turbines are manufactured by Vestas in Denmark, and are mounted atop 350 foot towers imported from Vietnam. EDP and Horizon also own and operate the Blackstone wind farm in Illinois that received a $171 million grant.

Yet after receiving over $50 million in U.S. stimulus subsidies, Denmark’s Vestas Wind Systems A/S, the world’s largest wind turbine maker, has now announced it will cut more than 800 jobs here and in Canada, representing 20% of its North American workforce.  Its orders were down by 24% during the first half of this year compared with the same period in 2011. Martha Wyrsch, head of Vestas-American Wind Technology, Inc. said “The U.S. wind industry has slowed, largely due to uncertainty surrounding the Federal Production Tax Credit extension.” According to Reuters, Vestas executives  admitted that without more tax credits and stimulus funds, the company will have trouble competing, and told customers that “…it would stop non-profitable projects. ” They emphasized that this is particularly true in Europe and America where demands for its products have plummeted.

The American Wind Energy Association apparently agrees with Vestas’ grim economic prognosis. The Wall Street Journal reported AWEA’s CEO Dennis Bode warning in 2010 that without the extension of the Federal 1603 [grant program] investment credit, the wind industry would “flat line” or slope downward.

Even with all that hidden help from generous taxpayers, wind isn’t any bargain for energy customers. Consider the planned 130-turbine Cape Wind development off Nantucket Sound for example. Acting upon the Massachusetts legislature’s Green Communities Act of 2000 requiring that 20% of the state’s power come from renewable sources by 2025, Governor Patrick approved a merger of two local utilities, NSTAR and Northeast Utilities of Connecticut, to create a new company that must purchase 27.5% of their output from the project. The $17.5 billion agreement also requires that Cape Wind freeze its rates for the next five years and distribute a one-time rebate of $21 million ($13 per capita) to the customers. But since Cape Wind construction hasn’t yet begun, the four-year freeze on electricity prices will lapse by the time NSTAR starts purchasing the power.

While offshore wind installations are very costly to build and maintain, second only to solar thermal, all wind power is expensive. Customers who chose to purchase the “NSTAR 100” option (with a theoretical 100% of their electricity coming from the Maple Ridge wind farm in upstate New York and Kirby Wind Power in Maine) already saw their current 4.791 cent per kWh premiums rise by 33% to 6.39% per kWh.

As noted by Peter Wilson in the American Thinker, Cape Wind has entered into a separate agreement with another utility, National Grid, to sell them their electricity for 18.7 cents per kilowatt hour (kWh) with a 3.5% annual increase over the next 15 years. This arrangement commences at more than double the current average Massachusetts rate of 8 cents per kWh. At the end of those 15 years the compounded interest will have driven customer costs to 31.3 cents per kWh, about four times what they are paying now.

Construction costs for offshore wind power projects runs about $5,000 per kilowatt, or about the same as a nuclear plant which will provide at least three times as much capacity with continuous rather than intermittent output. Even worse, an offshore wind installation costs about five times as much as a natural gas-fired generator to construct per kilowatt, plus also requires a backup power source (typically natural gas) to balance out the power grid during much of the time when the wind isn’t blowing.

On another front, how much has wind contributed to meeting America’s electricity energy needs?   A major point of public confusion often advanced by promoters fails to differentiate between maximum total capacities, typically presented in megawatts (MW), and actual predicted kilowatt hours (kWh) that are determined by annual average wind conditions at a particular site. Since wind is intermittent, and velocities constantly change, it often isn’t available when needed most—such as during hot summer days when demands for air-conditioning are highest.

Yet the PTC subsidy for wind creates an economic distortion called “negative pricing” which means that so long as they generate electricity, even during times when that power isn’t needed, producers still collect the tax credit for every kilowatt hour they generate.

We can expect to hear more and more scary stories from the American Wind Energy Association which, according to Bloomberg, spent $1.1 million in lobbying this year warning of a crushing blow to American energy security and jobs if Congress lets the wind Production Tax Credit lapse. But don’t expect them to mention the high cost of that energy and those jobs, or that most are temporary construction positions, with less than 20,000 involved in the manufacture of parts used in turbines.

So long as this industry’s survival depends upon those preferential government handouts and regulatory mandates, two things are clear. Wind is certainly not a competitive free market source of energy, or a charity we can continue to afford.

Source:  Larry Bell, Contributor | Forbes | 11 December 2012 | www.forbes.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial educational effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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