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Wind Power Is Reducing Electricity Rates; Pays Back Tax Credit 17 Times Over

| Monday April 7th, 2014 | 10 Comments

USWindTurbMtnsACORE Higher performance turbines, lower manufacturing costs and lower prices for consumers drove new U.S. wind energy construction to record heights in early 2014 — despite the U.S. Congress still debating whether or not to renew the federal renewable energy production tax credit (PTC), which expired Dec. 31. In many parts of the U.S., wind energy is now the cheapest form of electricity generation – cheaper than natural gas and even coal, NextEra chief financial office Moray P. Dewhurst recently stated on an earnings call.

The federal wind energy PTC has been instrumental in the U.S. wind energy industry achieving that milestone. Yet, Congress has been playing “now-you-see-it-now-you-don’t” with the U.S. wind energy industry for two decades now. Every time the PTC expires, wind energy investment and new capacity tumbles; when it’s in place, wind energy booms. It’s just bad policy, emblematic of the divisive partisanship, cronyism, lack of foresight and political leadership that has come to characterize U.S. politics.

In its “Outlook for Renewable Energy 2014,” the American Council on Renewable Energy (ACORE), working in conjunction with U.S. renewable energy industry trade associations, presents facts and figures that clearly illustrate the triple-bottom-line benefits and advantages the U.S. wind energy industry brings to American society, and how the renewable energy PTC has played a seminal role in spurring them on to realization.

Wind energy: Cheapest energy source in the U.S.

Faced with the increasingly urgent need to wean ourselves off fossil fuels and build a new clean energy infrastructure for the 21st century and beyond, members of Congress continue to oppose clean, renewable energy policies that carry tremendous, clearly demonstrated economic, social and environmental benefits and advantages. They also continue to support subsidies and incentives for one of the most profitable, dangerously polluting and politically powerful lobbies in U.S. history – the oil and gas industry.

The first section of ACORE’s “Outlook for Renewable Energy 2014” on the U.S. wind energy sector very clearly and concisely makes the case as to why the wind energy industry more than merits the support of the federal, as well as state and local, governments.

Now the cheapest means of generating electricity in many parts of the country, net power generation from wind energy was up 19 percent year-over-year in 2014, meeting 4.13 percent of U.S. grid demand, according to ACORE and the American Wind Energy Association (AWEA). Among U.S. states, 27.38 percent of Iowa, 25.95 percent of South Dakota and 19.39 percent of Kansas’s electricity came from wind energy in 2013.

Not only is wind energy lowering electricity rates, the prices consumers are paying in parts of the country where wind-generated electricity isn’t being added to the grid are going up. As ACORE highlights,

“The 11 states that produce more than 7 percent of their electricity from wind energy have seen their electricity prices fall by 0.37 percent over the last five years, while all other states have seen their electricity prices increase by 7.79 percent over that period. This is clear evidence for wind energy’s impact on keeping consumers’ electricity prices down.”

WindenergypricechangesACORE

A record of more than 10,900 megawatts (MW) of new wind power capacity began construction, and more than 12,000 MW were under construction in last year’s fourth quarter — just ahead of expiration of the wind energy PTC. Upon completion, these 90-plus projects will generate enough clean, renewable electricity to supply another 3.5 million households, according to ACORE.

Last year also marked important developments in the nascent U.S. offshore wind energy industry. As ACORE highlights, in addition to the University of Maine’s DeepCwind Consortium launching a pilot project, the U.S. Department of the Interior (DOI) held auctions for ocean areas off Rhode Island, Massachusetts and Virginia. Maryland passed legislation to support 200 MW of offshore wind power, while the U.S. Department of Energy (DOE) continued its groundbreaking work on seven offshore wind power demonstration projects.

Overall wind energy costs have fallen 43 percent in four years. Driven by advances in technology and stable, supportive policy, wind has been set on a pace to supply 20 percent of U.S. power grid needs by 2030, ACORE continues in its latest annual outlook for the U.S. renewable energy industry.

USWindEnMap2013ACORE

Wind energy PTC’s outsized returns

Moreover, the wind energy PTC attracted $25 billion in private sector investment in one year – 17 times the current annual value of the tax credit, ACORE highlights. As Morgan Stanley’s chairman of institutional securities Jeffrey Holzschuh added in a press release:

“The financial markets have responded to greater American consumer interest in renewable energy with increasing levels of private sector investment. Spurred by growing individual as well as business demand, private sector investment in the U.S. clean energy sector surpassed $100 billion in 2012-2013, stimulating significant economic development while supporting hundreds of thousands of jobs.”

That $25 billion single-year total is long-term private sector capital expenditure that likely would not have occurred had the PTC not been in place. And, as Morgan Stanley’s Holzschuh highlighted, that’s generating well-paying green jobs — lots of them. More than 70 percent of the value of wind turbines in the U.S. now carry the “Made-in-the-USA” label, ACORE notes.

Wind power, climate change and the water-energy nexus

There are yet more benefits and economic, social and environmental advantages to making use of wind energy. The wind that fuels this clean, renewable source of electricity generation is free once construction costs and ongoing operating and maintenance costs are recovered. As ACORE points out:

“Zero-fuel-cost wind energy directly displaces the output of the most expensive and least efficient power plants currently operating.”

According to market rules, grid operators add electricity to the grid in response to demand based only on the fuel costs and variable operations and maintenance costs of generation sources. Hence, wind and other zero-fuel-cost generating sources, such as solar, always rank first and displace more expensive power sources.

As a result, wind, solar and other such zero-cost-fuels are yielding very real social and environmental benefits in that they push the least efficient fossil-fuel power plants out of the market. That’s not only reducing the cost of electricity, it’s reducing air, land and water pollution, as well as carbon and greenhouse gas emissions. That mitigates the the threats of climate change, and the already rising costs of extreme weather events.

There’s more. Enhancing water conservation and water efficiency has become a critical need in the U.S. Extracting and refining coal, oil and natural gas, as well as using it to generate electricity, all require water — and lots of it. The more we use to produce electricity and fuels for transportation, the less we have for drinking and food production.

Using wind and solar energy to generate electricity significantly reduces water consumption and use.

Wind power alone saved 36.5 billion gallons of water in 2013, according to ACORE’s report. Dubbing wind energy a “drought-resistant cash crop,” farmers and ranchers are receiving consistent income from wind turbines installed on their land.

Now when you stack up and add, or multiply, all the advantages and benefits wind, solar and renewable energy afford society as compared to the predominant source of energy of the past 100-plus years – coal, oil and natural gas – it’s a wonder how the elected “representatives of the people” could get away with continuing to support and subsidize fossil fuels while opposing and seeking to eliminate the comparatively little that’s been done to support, subsidize and otherwise provide incentives for renewable sources of energy.

This begs the question of whom, exactly, our elected “representatives” are actually serving. And that’s a question for another article, a series of articles, or indeed, an entire book.

Images courtesy of ACORE


▼▼▼      10 Comments     ▼▼▼

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  • Bruce Morgan Williams

    Let’s duplicate this success story offshore by passing a ten year PTC for offshore wind.

  • SLDI

    Andrew is right:

    “Wind power, climate change and the water-energy nexus – There are yet more benefits and economic, social and environmental advantages to making use of wind energy.”

    Is Green Investment Finally on the Brink of Breaking Out?
    Sustainable Land Development Initiative | Tuesday March 15th, 2011
    http://www.triplepundit.com/2011/03/declaring-victory-green-investing/

    “Investors who are thinking about generational wealth are putting environmental issues and the availability of energy and natural resources at the top of their investment priority, as most of them will hit major crises in the next 50 years. Savvy Middle East investors are
    beginning to hedge against depleting oil resources, which they say will run out in the next 50 years.”

  • mikegiberson

    The wind power section of the ACORE report (produced with the help of the wind energy industry’s trade association) claims:

    “Newly released DOE data shows that consumers in the states that use the most wind energy have fared far better than consumers in states that use less wind energy.

    The 11 states that produce more than 7% of their electricity from wind energy have seen their electricity prices fall by 0.37% over the last five years, while all other states have seen their electricity prices increase by 7.79% over that period. This is clear evidence for wind energy’s impact on keeping consumers’ electricity prices down.”

    I have tried to verify this claim and after looking at DOE data believe the industry claim is false. Most of the 11 states that produce more than 7% of their electricity from wind saw electricity price increases at about the same rate as the national average and a few saw much faster increases.

    Can anybody not a paid worker or lobbyist for the wind industry verify the industry’s claims of consumer rate benefits?

    (Actually, even if you are a paid worker or lobbyist for the industry, can you please explain the data and method behind the calculation above?)

    • AB

      Here is a link to the AWEA white paper, courtesy of press officer Lindsay North:

      http://awea.files.cms-plus.com/AWEA%20White%20Paper-Consumer%20Benefits%20final.pdf

      And to the underlying data from the DOE-EIA:

      U.S. Energy Information Agency, Table
      5.6.A. Average Retail Price of Electricity to
      Ultimate Customers by End-Use Sector, by
      State, November 2013 and 2012 (Cents per
      Kilowatthour).

      • mikegiberson

        Okay, I’ve looked at the “Wind Power’s Consumer Benefit” report and the data from the U.S. EIA, but I’m still not figuring out the calculation.

        The “Benefit” report mentions the average fall in price “over the last five years,” which I take to be comparing December 2008 prices to December 2013 prices.

        For the 11 states, I calculate an average price in December 2008 of 7.21 cents/kwh and an average for December 2013 of 8.40. The 2013 average appears to be a 1.2 cent (16.5 percent) increase over the 2008 average.

        For the other states, I calculate the 2008 average at 10.6 cent/kwh and the 2013 price at 11.2. The 2013 average appears to be a 0.6 cent (5.5 percent) increase over the 2008 average.

        So while the 11 states that have more than 7% of their electric power coming from wind have lower prices on average than the other states, this is something that was true before much wind was added (i.e. true even back in 2001). Over the five-year period mentioned, however, it looks like prices in the 11 states have seen average retail prices grow significantly faster than the other states.

        In fact, looking at the 11 states individually, only Texas saw falling prices from December 2008 to December 2013. The other “wind heavy” states saw price increases. (For two states, Iowa and Oklahoma, the increase is about the same as the average for the other 39 states; for the remaining 8 “wind heavy” states, the increases appear to be two or three times more than the average.)

        I don’t correct for inflation, but that shouldn’t affect the relative results much anyway. I suspect the AWEA is weighting the price changes by total kwh sold, or maybe by wind capacity, or something, but the “Benefits” report doesn’t explain how they get their answer and each time I try to calculate an answer using US EIA data I get the opposite answer.

        I’m still looking for help.

  • Peebles Squire

    The Production Tax Credit, incentivizing only those wind farms that produce electricity, is a smart, market-based policy that has helped wind keep the lights on in more than 15 million homes as of the end of 2013.

    Wind power provides jobs and promotes economic development in all 50 states, attracting private investment of up to $25 billion a year. That money goes towards projects that can revitalize rural communities, strengthen the tax base, and protect farmers from bad growing seasons. In Iowa, private investment of $9.8 billion in wind energy has helped transform the state into one that obtains more than 27 percent of its electricity from wind. Now, Iowans are exploring the possibility of exporting their abundance of wind, opening up even more opportunities for growth.

    Extending the PTC should be a congressional priority. Each time this important incentive is not extended, the wind power industry must endure a boom-bust cycle that threatens jobs and the diversity and security of our grid.

    With the right attitude and policy, this country will continue to help lead the way for years to come, driving this economy, and our energy future, forward.

    For more information on wind, visit http://www.awea.org

    Peebles Squire

    AWEA

    • mikegiberson

      Mr. Squire, can you provide me any guidance on how your organization calculated the retail consumer price benefits reported in the AWEA report “Wind Power’s Consumer Benefit”? I can’t seem to get the same results using DOE data.

      • Windy

        You won’t get results, because they don’t exist.

        Wind is supported through stackable subsidies that other generators don’t benefit from. Wind farms enjoy direct subsidies like the PTC, and hidden subsidies in form of lifetime exemption from property taxes (in Kansas). Then there’s blanket amnesty from environmental laws which coal/gas/nuclear plants spend millions complying with, and preferential treatment from grid operators as outlined in the article above. Combined with real or imagined ‘carbon guilt,’ how can wind lose?

        Here in Kansas, the “Saudi Arabia of Wind,” economic benefits are way overstated; wind farms are built with little to no local labor, and require just a handful of technicians to operate. We’ve seen no real change in electricity prices either way.

        When the wind blows at its peak (nights in Jan-Mar), it’s not really needed. When wind generation is needed (afternoons in July-August), they’re barely turning or are parked. Thus, utilities need reliable, dispatchable peaking units, which means building new gas plants (as coal is now forbidden), driving ratepayer costs UP, not down.

        Don’t get me wrong — I like wind energy (and love solar energy). I wish I had a turbine or two on my property. But to say an intermittent source is the end-all solution to America’s energy needs, or that it’s cheaper than coal while glossing over its hidden stacked subsidies… that’s not an intellectually honest position.

  • Observer

    Help me understand, if the tax credit is 2+ cents, and is paid back 17 times, does that mean the value of wind is over 34 cents? Whatever the multiplier, if the value of wind energy is so good, why does the PTC need an extension? Should we deduct the cost of high voltage transmission construction driven by wind additions?

  • alpha2actual

    Here’s a synopsis of a typical Anthropogenic Climate Change abatement project, Cape Wind Nantucket. This is the will be the first offshore wind turbine installation in the United States. Cost, $2.6 BILLON.

    This 120 wind turbine project is rated at 468 mw and will produce 143 mw after applying a capacity factor of 30.4 % (as computed the the University of Delaware) the time the wind actually blows, life cycle is 20 years therefore this project will produce 24.6 Terawatts life cycle. Insofar as this project located in an area which is enshrouded in fog 200, on average, days of the year a low wind velocity environment, a more realistic life cycle output would be 15 Terawatts.

    A combined cycle natural gas turbine plant studied by the DOE completed in 2010 is rated at 570 mw and produces 470 mw, capacity factor 85%. cost $311 MILLION. life cycle 35 years therefore this plant will produce 133 Terawatts life cycle.

    The contracted cost of the Cape Wind energy will be 23 cents a kilowatt hour (excluding tax credits, which are unlikely to last the length of the project), which is more than 50% higher than current average electricity prices in Massachusetts. the bay state is already the 4th most expensive state for electricity in the nation. Even if the tax credits are preserved, $940 million of the $1.6 billion contract represents costs above projections for the likely market price of conventional power. moreover, these costs are just the initial costs they are scheduled to rise by 3.5 percent annually for 15 years. by year 15 the rate will be $.38 per Kilowatt. Draw your own conclusions.