Tax Breaks Power Wind Energy

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Judith Gap Montana Wind Farm

I was reading through the winter issue of Issues in Science and Technology when I came across an article on "Accelerating the Pace of Energy Change" by Energy Undersecretary for Science Steven Koonin and DOE Senior Advisor Avi Gopstein (subscription required). One of the conundrums I've been mulling over lately is why there is so little R&D investment in the energy sector compared to other technology sectors. Energy R&D is just 0.3 percent of domestic sales while other sectors like communications is 25 percent, pharma at 12 percent, and the all industry average is about 3 percent of domestic sales.

I haven't come to a settled opinion yet, but I suspect that it has something to do with the fact that energy production is a commodity industry: all electrons and transport fuel molecules are pretty much alike no matter how they are produced and they are already pretty cheap. In addition, the fact that electricity sector has been tightly regulated for nearly century has also probably discouraged R&D investment. But as I say, I haven't made up my mind yet. 

In any case, I was struck by a chart included in the article which showed the effect of production tax credits on investment in wind energy facilities. Below is a chart that actually reproduces the data and adds a year to the one in the article. 

Money produces wind

Below is an explanation of how wind production tax credits work from fierce wind power critic Glenn Schleede:

A "wind farm" owner is eligible for a Wind PTC, currently $0.021 per kilowatt-hour (kWh), for electricity produced during the 1st 10 years of operation. The new expiration date for the PTC was extended to December 31, 2012. If the illustrative $100 million project had turbines with the combined, "rated" capacity of 50 megawatts (MW) and they operated at a 30% capacity factor, the turbines would produce 131,400,000 kWh of electricity each year, the owners would receive a tax credit (a direct deduction form tax liability) of $2,759,400 per year during the first 10 years of operation, thus reducing federal income tax liability by $27,594,000 over 10 years.

The main take-away is that wind energy despite this and other considerable government largesse is still far from price competitive with conventional sources of power. A point that I made a while back in my article, "Wind Turbines Are Beautiful." 

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  1. The main take-away is that wind energy despite this and other considerable government largesse is still far from price competitive with conventional sources of power.

    Wind turbines are the alpacas of the energy market.

    http://www.creators.com/opinio…..lpaca.html

    By the way, wind turbines are extremely INefficient energy-conversion systems:

    http://www.energytribune.com/a…..-Cold-Hits

    1. inefficient? not when u factor-in the costs of mining coal, drilling for gas, transportation, pollution control, environmental degradation, plus worker safety & health care.

      1. Exactly right. It isn’t that wind power is too expensive, it’s that the actual costs of fossil fuels are hidden from the consumer. No one ever seems to include the money spent on our overseas empire to guarantee the flow of fossil fuels, but it is still a cost.

        1. Ben Wolf|1.19.11 @ 2:46PM|#
          “…No one ever seems to include the money spent on our overseas empire to guarantee the flow of fossil fuels, but it is still a cost.”

          Stupid crapola repeated often enough turns into, well, stupid crapola.

          1. aww, lil sevo still thinks we invaded iraq because of nukes. and just forget the bush family are great friends of the saudi royals. ur soo cute (cheek pinch for you!)

            1. OhioOrrin|1.19.11 @ 3:33PM|#
              “aww, lil sevo still thinks we invaded iraq because of nukes…”

              Stupid crapola defended by ignoramuses only adds an ignoramus to the mix.

        2. Re: Ben Wolf,

          it’s that the actual costs of fossil fuels are hidden from the consumer.

          This is false. No, sorry: It is grotesquely false. The costs of fossil fuel extraction or mining are already factored in the price per BTU or price per barrel, as transporters, miners and/or oil companies are NOT ladies of charity. In other words: They don’t work for nothin’.

          I cannot fancy whence people get this idea that these commodities are somehow priced artificially, especially within the realm of an aggressive commodity market. Some conspiracy that would be!

      2. Re: RealOO

        inefficient? not when u factor-in the costs of mining coal, drilling for gas, transportation, pollution control, environmental degradation, plus worker safety & health care.

        One: You really think coal and gas do not have those costs factored in in the price per BTU? If you think THAT, you’re more of a fool that you would like to show. I used to buy COAL for a Cement company and, trust me, all those costs are factored in the price.

        And “environmental degradation”? What the hell are you talking about? The environmental impact of a system is in direct proportion to its economic efficiency, and the idea of using prime REAL ESTATE to plant those ugly things instead of generating electricity from a single plant is ridiculous, it makes NO economic sense. I would ask YOU: Have YOU taken into account the cost of acrerage for planting these giant daisies?

        1. “I would ask YOU: Have YOU taken into account the cost of acrerage for planting these giant daisies?”

          Thank you! May I plagiarize that the next time I need a snappy comeback for one of these greener-than-thou type?

  2. I’ve figured it out.

    It’s not corporate welfare if it’s “green” energy or trains. Then it’s government investment in infrastructure.

    Or something like that.

  3. The real killer: Wind turbines that actually consume more electricity than they produce, just so they won’t freeze:

    http://www.dailymail.co.uk/deb…..blows.html

    Over the past three weeks, with demand for power at record levels because of the freezing weather, there have been days when the contribution of our forests of wind turbines has been precisely nothing.

    It gets better. As the temperature has plummeted, the turbines have had to be heated to prevent them seizing up. Consequently, they have been consuming more electricity than they generate.

    But what is a little money thrown down the drain when we have Global Warming… Uh, Global Climate Change… Uh, Global Climate Disruption… Uh… Romulan disruptors…

    1. That’s not true for all turbine models.

      1. Re: Pip,

        That’s not true for all turbine models.

        Maybe – and? There’s no way around PHYSICS, Pip: Turbine power conversion is very sensitive to wind speed changes, to the CUBE of v. That leaves a VERY SMALL WINDOW for optimal performance.

        1. “Maybe – and?”

          No maybe.

          1. Re: Pip,

            No maybe.

            Ok, and?

  4. Ron, does that count oil industry R&D? Seems looking around Houston there’s a lot of oil company research offices.

    1. Good question. If you count oil exploration (and I think you can make argument that this is, indeed, research and development), I would be very surprised that the number is that low.

      Do they break down what they included, Ron?

    2. Spoonman & RC Dean: Yes, it does apparently include oil, but as you might imagine “energy” is a big category and, as I’ve discovered in my research, finding out how the summary R&D figures are derived is not easy.

  5. Neither wind nor solar are going to become a major source for energy until someone comes up with a way to store the energy cheaply since you will still need large scale conventional sources of power when the wind does not blow or the sun does not shine. You can throw all the money in the world at wind and solar production but until the energy storage problem is solved your just working at the margins of the energy pie.

      1. Pfft, get back to me when they work out induced gamma emission. (really, flywheel storage looks cool as hell.)

      2. Wouldn’t that fling molten salt all over the place? Hazard pay seem to be in orider here.

  6. Because I do have random bouts of dyslexia, when I read the headline I saw “Tax Power Breaks Wind” didn’t see the word “Energy” at first. I was definitely intrigued.

  7. ‘A point that I made a while back in my article, “Wind Turbines Are Beautiful.”‘

    You’re starting to sound like Paul Krugman (and, of course, before him, Daniel P. Moynihan).

    1. STOP SPELLING MY NAME WRONG!!!

    2. AV: Except that, unlike Krugman, I am generally correct in my facts and my analysis.

      1. If you are generally incorrect in your facts and your analysis, you might be a Nobelist.

  8. Tax Breaks are hardly a renewable resource.

    1. Wrong. The supply is endless.

  9. Is it also factoring in the tax credits that fossil fuels get, the (virtually) rent-free land to drill, etc.? It seems that people always criticize green technology for tax credits, but never criticize the fact that fossil fuels get tax credits as well. It’s akin to criticizing tax credits for buying the Chevy Volt or Nissan Leaf, but not criticizing the tax incentives Nissan got for building the factory in Tennessee.

    The thing about renewable energy is that once you build the generators, the only cost is maintenance. Fossil fuel generators are constantly having to get resources, which itself is an expense of energy. It’s a no-brainer that we need to get away from fossil fuels and it’s comical that arguing these points induce ridicule. Do we really expect that we’ll go from fossil fuel to renewable without some speed bumps and money?

    Let’s just keep plugging away at trying to make renewable energy better. If it means funding in the form of tax incentives, so be it.

    The DoE recently posted the following article (http://www.windpoweringamerica.gov/ne_economics_cost.asp)

    “Overall, the wind industry is experiencing long-term decreases in the cost to produce wind-generated electricity (Figure 1), despite recent short-term increases in upfront equipment costs. Even in the short term, however, the effect of increases in up-front capital costs on the cost of energy from wind power projects has been dampened by improvements in energy capture from the wind and decreases in operating and maintenance costs.”

    1. Chris Lindsey: With due respect, do you think it possible for the DOE to be objective about the economic prospects of alternative energy supplies? In any case, let’s get the government completely out of subsidy business for all types of energy.

    2. I don’t know what state you live in, but here in Texas the energy company has to pay substantial leases to the property owner.

    3. Yeah, I don’t know where you’re getting “rent-free” for the land to drill on, and even if they have a very low rent with the property owner, how is that a subsidy instead of a private contract?

      If you’re talking about low costs of permitting to drill on BLM land, well, there shouldn’t be BLM land.

      Fixed!

  10. If the first law of thermodynamics can be extended to include money as well as energy, and these things don’t break even (without a subsidy) financially, then can they be breaking even energetically?

    To put it another way, where is all the energy and materials coming from to maintain these things over their projected lifespan? If that is being paid for with subsidies, and those subsidies are used to buy parts and labor that trace back to a hole in the ground (in the mid-east, Alaska, Russia or wherever), then have we really knocked down oil consumption?

    Just askin’, cause I’m getting the impression that the economics really don’t work… and I don’t like the implication.

    1. “Just askin’, cause I’m getting the impression that the economics really don’t work… and I don’t like the implication.”

      T Boone Pickens agrees with you. And now that he’s sure congress won’t keep him from drilling his natural gas, he’s out of the wind biz altogether.

  11. Is it also factoring in the tax credits that fossil fuels get, the (virtually) rent-free land to drill, etc.?

    Leases to drill on private land are quite expensive.

    If the feds are undercharging for leases to drill on public land, then I join in your condemnation of poor stewardship by the government.

    Do we really expect that we’ll go from fossil fuel to renewable without some speed bumps and money?

    I just don’t see why it the money has to be federal subsidies.

    1. I thought we had the big fight in 2006 or 2007 about the oil lease subsidies in the Gulf that started during Clinton and didn’t get renewed by the Congress.

  12. Do we really expect that we’ll go from fossil fuel to renewable without some speed bumps and money?

    I just don’t see why it the money has to be federal subsidies.

    Or why we have to gun the engine approaching the speed bumps, incurring as much damage to our undercarriage as possible. (also, you could end up with the car in a ditch.)

    1. Suddenly, I have a craving for a Slurpee.

      1. Stupid joke tag OFF, already.

  13. Dear Ron-

    Did you see the article in the NYT a week or so ago, about the solar panel company which, after sucking up all the subsidies bribes available from Massachusetts, decided to move production to China?

    Because they can’t compete on cost.

  14. The thing about renewable energy is that once you build the generators, the only cost is maintenance.

    “Look, everybody! I get thirteen watts of FREE 12v electricity per week to run the lamp on my desk! And it only cost me $100k! Woohoooo!”

  15. The best feasible green energy.

    Liquid Flouride Thorium Reactors

    http://energyfromthorium.com/

    1. Even I know nucular don’t count as ‘green’.

    2. Ah c’mon, thorium is so low-tech…. remember Flash Gordon stoking the thorium furnace when was a prisoner?

      1. So that’s what the kids are calling it now.

  16. Pip: Check ur spectacles…. “stoking”, not “stroking”.

  17. If wind were truly a viable alternative, one wind farm in Washington DC should take care of all of our needs.

  18. I didn’t see it discussed here, but wind energy displaces natural gas or hydroelectric power.

    When wind farms are producing, the grid might not need the power. When they’re not producing, the grid might need the power. Coal and nuclear plants cannot be started and shut down quickly, but hydroelectric and natural gas generation can.

    The result is very little additional electric power–when the wind farm is producing a dam or a natural gas generator has to be shut down to accomodate it.

    http://www.columbian.com/news/…..wer-plans/

    To ensure a steady flow of power, wind energy companies are required, as a condition of their federal permits, to pay for backup power that can be fed into the grid when the wind stops blowing or turbines are taken offline for some other reason.

    Hydroelectricity is the only source of backup energy. But the BPA announced in August that it has reached agreement with a California company for a pilot project to provide up to 75 megawatts of backup power from a natural gas-fired plant in Hermiston, Ore.

    The opposite situation ? too much wind ? poses a different challenge. During a storm last May, more than a thousand wind turbines in the Columbia river Gorge began spinning, creating the largest hourly spike in wind power ever in the Pacific Northwest. The grid couldn’t handle the excess power, so turbine owners were directed to slash output by “feathering their blades” ? turning them into the wind.

    The fact that the region’s wind turbines are concentrated on the Columbia River Plateau makes the challenge trickier, said Johnson of the BPA, because a single storm sweeping through the region can pack such a wallop.

  19. Incidentally, if every wind turbine were devoted to pumping water uphill, which could then be used to generate hydroelectric power, my only complaint then would be the cost.

    But the dams in the Northwest already have many other calls on the water they store. Irrigation, flood control, salmon migration all compete with power production for the same water. Now they throw balancing the wind farms into the mix.

  20. In fact it’s almost like one of Bastiat’s parables:

    We would have more, cheaper, greener and more reliable power if we used our dams and natural gas resources to produce power, paid for the wind turbines and then threw them in a landfill, than if we try to use the wind turbines to generate electricity.

    Seriously, the government should pay for the wind farms and throw them away. Energy companies get their pork, we get better power. It’s win-win.

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