In this context, a recent opinion piece on FoxNews by Steve Lockard—CEO of a company making wind turbines and a board member of the American Wind Energy Association—was quite ironic. Lockard was trying to appeal to conservative readers by claiming that the Congress was threatening to destroy American jobs through tax hikes, and that even Ron Paul agreed this was a violation of the free market. Let’s go through Lockard’s claims to get the real scoop on the inefficiency of wind power.

Lockard on Wind Power and the Market

To set the stage, we’ll quote extensively from Lockard’s piece:

Our wind energy manufacturing company has created 700 new jobs in Newton, and a second wind energy company now employs over 100 people.

Our industry can do the same in hard-hit towns all across the U.S., if Congress will let us and doesn’t increase taxes on wind power in the New Year.

…

What is happening in Newton is happening all across the country, although many people don’t realize it. Wind energy is a market that the U.S. is winning.

…

These economics are driving a surge in wind manufacturing. Over the last six years, U.S. domestic production of wind turbine components has grown 12-fold, to more than 400 facilities in 43 states. This has helped shift manufacturing jobs from overseas back to the U.S.

…

All that is needed is Congressional action to keep the tax rate stable and low on this homegrown American energy source. That is why extending wind’s federal Production Tax Credit (PTC) is so important. If Congress raises taxes on wind energy by letting this tax rate expire in 2012, many of the good U.S. manufacturing jobs we’ve been able to create will evaporate.

…

Presidential candidate Ron Paul visited our factory himself in October. He told reporters in our conference room that, “As a believer in the free market, I don’t look at a tax credit as a subsidy.”

…

Now if Congress will let us finish the job, wind energy can do for America what we have already done for Newton, Iowa: Create U.S. manufacturing jobs right here at home.

Lockard’s piece is a great PR effort, making three basic claims that would appeal to Fox readers: (1) Wind power can fuel job growth out of the recession. (2) Congress is threatening to abort this recovery by raising taxes on wind power. (3) If Congress would just mind its own business, the free market would support a massive expansion of wind power.

Unfortunately for Lockard, these claims are either very misleading or downright false.

Wind Power Is a Tiny Fraction of the Energy Sector

Lockard’s talking points make it sound as if wind power is poised to take over the energy scene. But like Paul Krugman’s similar remarks about solar power, these too are unsubstantiated.

According to the Energy Information Administration, in 2010, wind power accounted for 0.9 percent of the energy used in the United States.

Yes, it’s easy to achieve large rates of growth in the wind sector, when starting from such a low baseline. The EIA projects that wind will only produce 3.1 percent of electricity by 2035, up from 2.3 percent in 2010. Because of higher costs and the tremendous problem of intermittency—the wind doesn’t always blow—wind power is nowhere near a position to fuel an economic recovery.

Wind Power Dependent on Tilted Playing Field Established by the Government

When Lockard speaks of “raising taxes” on wind power, it’s not the same thing (say) as proposals to raise marginal income tax rates on the rich. Rather, he refers to the expiration of the federal production tax credit (PTC) that wind currently enjoys.

The PTC for wind was first introduced as part of the Energy Policy Act of 1992. It was defined as a 1.5-cents-per-kilowatthour payment (adjusted annually for inflation), available for 10 years to investors for facilities placed in service between 1994 and June 30, 1999. The PTC for wind has expired and been reinstated several times since its origination. The Emergency Economic Stabilization Act of 2008 (Public Law 110-343) signed on October 3, 2008 extended the PTC to 2.1-cents-per-kilowatt-hour through 2012. The $787 billion economic stimulus President Obama signed into law in February 2009 made a 30 percent investment tax credit available in lieu of the production credit.[1] The Obama Administration also instituted the section 1603 grant program where the 30 percent investment tax credit could be taken as an immediate rebate rather than used against taxes, but that program expired in 2011.

Now it is true that other forms of energy receive federal tax preferences. However, when calculating the implicit “subsidy” in terms of dollars per unit of energy delivered, the relative advantage isn’t even close. For example, total federal subsidies in fiscal year 2007 were $23.37 per megawatt hour for wind, compared with $0.44 for conventional coal and $0.25 for natural gas and petroleum liquids.[2] In fiscal year 2010, they were even higher. Wind’s subsidies amounted to $56.29 per megawatt hour, while the figures for coal, and natural gas and petroleum liquids, were tied at a mere $0.64.[3]

In addition to the federal tax advantages, wind power also enjoys mandated usage in various’ states Renewable Portfolio Standard (RPS) frameworks. What happens here is that a given state will mandate that utilities must generate a certain percentage of electricity from “renewable” sources, and it is often cheapest to comply with the mandate by using wind power. (However, we note that many states are not in compliance with their own RPS.)

Tax Credits and the Free Market

By citing Ron Paul’s views on tax credits, Lockard tries to equate a blossoming wind sector with the “free market.” However, this is quite misleading. Ron Paul was making a principled distinction, based on libertarian views of property rights, between an actual government spending subsidy versus a tax credit (which simply subtracts from a company’s tax payment owed to the government). Paul’s point was that any revenues a wind company gets from its customers are the property of the company, and so it shouldn’t be considered a “government subsidy” if that company is allowed to retain more of its own money through a tax credit. (In contrast, a bona fide subsidy would involve a person or company receiving a net transfer of tax dollars to achieve some goal that the government wanted to promote.) This is what Ron Paul meant by saying that he supports the free market and therefore doesn’t consider a tax credit to be an actual government subsidy.

Yet Lockard shouldn’t leap to the conclusion that wind power is therefore a creature of the free market. Really what we’re seeing is that if the government mandates the use of wind power, and keeps taxes relatively low on wind power, while heaping much larger taxes on conventional energy sources, then wind power can survive, albeit still being confined to a small niche.

Lockard implicitly gives away the game when he says that removal of the tax credit would devastate the wind industry. By the same token, if the government kept the wind PTC, but extended the same credit to every other energy source, then the wind sector would also collapse. This is because—with current technologies and the state of our energy infrastructure—it is more efficient to have the vast bulk of US energy produced by conventional sources, rather than wind.

Conclusion

Although he made a clever effort to appeal to conservative readers through rhetoric of job creation and tax hikes, Steve Lockard hides the plain fact that in a level playing field—i.e. a true free market—wind power will only constitute a small niche for the foreseeable future. It is only growing at its current rate because of a massively unfair playing field of federal tax advantages, subsidies, and state mandates.

Ten years ago today, on December 2, 2001, Enron declared bankruptcy. The company is now liquidated, but Enron’s intellectually insolvent “green energy” model is alive and well in the Obama Administration. Cap-and-trade rationing of carbon dioxide (CO2) emissions and “green jobs” with wind and solar — Enron was there first.

Under its founder and chairman, the late Ken Lay, Enron set out to become the world’s leading renewable energy company. The company entered the solar business with a half stake in Solarex in 1994. And it entered wind manufacturing and project development with the purchase of Zond Corporation in 1997, which was described by the American Wind Energy Association as “a tribute to the foresight of Enron…one of the most aggressive and strategic-minded players in the energy market.”

Read the entire article here.

The Netherlands Experience

Offshore wind became a reality for the Dutch in 2006 when they built their first offshore wind farm to begin — they believed — reducing their carbon dioxide emissions. Five years later, however, the Dutch government finds that offshore wind at 18 Euro cents ($0.24) per kilowatt hour is just too expensive for continued government hand outs, consisting of about 4.5 billion Euros ($6 billion) last year.  Instead, the government plans to have households and industrial consumers cover the bill starting in January 2013 and to attract funds from the private sector. The change is expected to garner only one-third of the previously funded amount by the government— just 1.5 Euros—and investment dollars are expected to go to less expensive technologies. So, the future outlook for wind in Holland is bleak to say the least.[iv]

Wind currently supplies 4 percent of Holland’s power and was expected to supply 14 percent by 2020. But current speculation is that it will only supply 8 to 12 percent by then due to the changed government policy.

The Dutch are facing issues with wind power because of the high cost and maintenance of offshore wind turbines and because of onshore turbines marring the landscape and views of residents. Offshore wind is about twice as expensive as onshore wind due to the higher cost of materials, more expensive drilling methods, and more complex maintenance. Offshore wind turbines need to be able to withstand strong winds and salt water and they require special equipment and transportation for their maintenance. Because drilling the seabed requires specialized labor and equipment, it is more expensive. And additional transmission lines are needed to connect offshore units to the electricity grid onshore. While offshore wind power generates a higher level of electricity than onshore wind farms, its generation levels are still much less than fossil fuel and nuclear electricity technologies since it is still reliant on the wind blowing.

Wind farms and the British Monarchy

Prince Philip, the Duke of Edinburgh, thinks windmills are useless.  In fact, he has called them a “disgrace”, and will not allow his land to be covered with them despite the leanings of the British government. He criticized the industry’s reliance on subsidies and thinks that advocates are believing in a “fairy tale” since wind power requires back-up power.[v]

Britain has 3,421 turbines, over 85 percent of which are on shore, and another 4,500 are expected to be built.  British electricity consumers pay an average of 90 pounds ($143) a year to subsidize wind farms and other forms of renewable energy in order for the country to meet its carbon-reduction targets. Foreign companies, which own two-thirds of the country’s wind turbines, are estimated to receive 500 million pounds a year in subsidies. While Prince Philip is against wind, the Crown owns almost all of the offshore areas on the country’s 7,700-mile coastline.  Britain currently has 436 offshore turbines. With more offshore sites having been approved, Britain’s offshore turbines could reach 7,000 within 10 years. Growth in offshore wind farms could be worth 250 million pounds a year.

Clean Energy investment

Bloomberg’s New Energy Finance forecast sees clean energy investment rising from $195 billion in 2010 to $395 billion in 2020, and $460 billion in 2035. This investment, they believe, would increase world “clean energy” capacity by just 3 percentage points. They predict that China will take the lead over Europe in 2014 with outlays on clean energy of almost $50 billion annually. Investment growth will be the largest in India, the Middle East, and Africa, ranging from 10 to 18 percent. But the Bloomberg forecasters believe that by 2020, markets outside of the European Union, the United States, Canada and China will account for 50 percent of global annual investment in renewable energy capacity. Of course, that will only be if the world still believes there is a merit in renewable energy and the subsidies it needs to survive.

Despite the Bloomberg forecast, polls in the United States are seeing some disenchantment with renewable energy due to recent events with bankruptcies of renewable energy firms such as Solyndra. The polls show a decrease in support for federal spending on renewable energy of over 10 percentage points and a drop of 6 percentage points in whether government support is necessary to spur new energy technologies. And further, the renewable loan program did not create the jobs President Obama had touted. The Washington Post reported that the $38.6 billion green loan program had created only 3,545 jobs over two years when President Obama had predicted it would “save or create” 65,000.[vi]

History has shown that the government is a poor selector of new technologies. The Washington Post provided a list of failed government energy projects that included the Clinch River Breeder Reactor, the Synthetics Fuel Corporation, the hydrogen car, and “clean coal” to remove carbon dioxide emissions from burning coal and sequestering them. Despite government funding and backing, none of these projects was successful. And not only have solar firms (Evergreen Solar, Solyndra, SeptraWatt) supported by the U.S. Department of Energy filed for bankruptcy this year, but Beacon Power, a firm that the department supported that tried using flywheels for electricity storage, filed for bankruptcy on October 30. Ener1, a maker of lithium-ion batteries, is also a recipient of an Energy Department grant and was delisted on October 28 by Nasdaq because of its low stock price.[vii]

Conclusion

Government investment in failed energy technologies has cost American taxpayers billions of dollars, the latest of which have been in solar manufacturers such as Solyndra and electricity storage technology, Beacon Power.  The government has a history of funding economic ventures in energy technology that have failed as future energy technologies. And yet, Nobel prize winner of physics and Secretary of Energy, Steven Chu, still believes he should spend our hard-earned dollars on more energy experiments. Perhaps that will change as more and more people learn the truth about renewable energy and become disenchanted as we have seen with the Dutch government and the Duke of Edinburgh.

Since 1996, the Dutch government has been providing an 18 euro-cent (24 cents U.S.) per kilowatt hour subsidy to wind power producers.  To put these subsidies in perspective, the average retail price for US electricity is only 10.60 cents per kilowatt hour. In other words, American electricity rates are less than half the Dutch’s wind subsidy.

These overly-generous subsidies are one reason that electricity rates in the Netherlands are more than US $0.25 per kilowatt hour—more than double the $0.106 average retail price per kilowatt hour in the United States.

One problem with the Netherlands’ generous subsidies is that both electricity customers and taxpayers end up paying for them through higher rates and higher taxes.  Because the costs have grown so great, the Dutch government is working to transfer the cost of the subsidies directly to electricity customers through higher electricity rates.  Even though rates are already high in the Netherlands, they will increase even more to pay for the wind subsidies.

With such lavish subsidies are driving up the cost of electricity, it is understandable that the Duke of Edinburgh this weekend called wind power a “fairy tale” and “an absolute disgrace.” English energy customers, like Dutch customers, are seeing their electricity bills rise thanks to taxes used to pay for more wind subsidies. Last year electricity customers in England paid an average of £90 (US $143) a year to subsidize wind farms and other renewable producers.

The wind industry claims that wind is now cost competitive with natural gas. The Dutch experience suggests otherwise. If wind were cost competitive, it wouldn’t need subsidies and special favors in Europe or the United States.

But when you look at the subsidies on an energy production basis, the disparity becomes stunning (or scandalous from a taxpayer viewpoint).  Wind’s 5.6 cents per kilowatthour is more than 85 times that of oil and gas combined. And solar … would you believe 13 times that of wind, making the disparity north of a thousand times?

But a second argument of renewable advocates has crept up: that government subsidies over many decades allowed the oil and gas industry to cement its perch atop the energy chain. The implication is that wind and solar may need the same long-lived subsidization to achieve commercial viability too.

Argument from History

This argument from history is errant as well.

The commercial oil industry dates to 1859, the year of the Drake well in Pennsylvania. The U.S.petroleum industry matured in the next decades and then shifted to the southwest with the discovery of the Spindletop gusher in Beaumont,Texas in 1901.

Meanwhile, a commercial petroleum industry developed abroad, a development that would lead to increasing oil imports to the U.S.and price “demoralization” for domestic producers by the late 1920s. From this period through the 1960s, the “problem” was too much oil, not too little.

Does this sound like an infant industry? Hardly! It was an industry that was ‘too good for itself’ in some ways, and certainly not one threatened by a cheaper energy source as, say, electricity was to manufactured (coal) gas in this era.

So when did government oil and gas subsidies begin in the U.S.?

Corporate taxation began in 1909, and the depletion tax writeoff began in 1913. The intangible drilling and development cost deduction began in 1917. So the classic subsidies cited by renewable apologists began a half-century after the industry was born. Direct government subsidies, such as checks written on the U.S. Treasury, were virtually nonexistent in the history of the petroleum industry.

Industry Penalization

The federal government has a long history of penalizing the industry, not only subsidizing it via the tax code. Price ceilings on oil production and the sale of petroleum products during World War II and again in the 1970s are cases in point. Also recall the Windfall Profit Tax of 1980, however short-lived.

On the natural gas side, comprehensive price controls on wellhead gas sold in interstate commerce lasted from the 1950s through the 1970s. Such controls caused predictable shortages for consumers, making not only producers but consumers victims of federal energy policy.

Moreover, the brunt of special tax favoritism was removed beginning in the 1970s. So an argument can be made that the U.S.government has reverse subsidized oil and gas in the last half-century.

Imagine if electricity from wind and solar were constrained by a federal price ceiling. Imagine is solar and wind companies were subject to an excess profits tax. Imagine if a wind-turbine exploding or a wind worker falling to his death led to a moratorium on new wind projects.

Or imagine if governments around the world suddenly announced a 50-year holiday on taxpayer favor to correspond to the sink-or-swim period of the oil industry.

Say goodbye to virtually all of industrial windpower. And the solar industry would shrink to its rightful off-grid self, where its niche applications would provide bridge energy until the place/area could graduate to (fossil-fuel) grid power.

Conclusion

Wind and solar are consumer-rejected forms of electrical power, pure and simple. They are not infant industries but perennially inferior ones. Government subsidies for any form of energy, and certainly the least economic (most dilute), is an easy budget cut for any democracy in deficit.

Source: Robert L. Bradley Jr., Oil, Gas & Government: The U.S. Experience (Roman & Littlefield, 1996): chapter 5 (wartime price controls); chapter 7 (oil and gas taxation); chapter 8 (natural gas price controls); chapter 9 (crude oil price controls).

• “Including incentives, which all forms of energy get, wind is now close to cost-competitive with all other energy sources”, and
• “Over all wind power supports 75,000 jobs across the United States today, and —with a stable tax policy—it promises to support 500,000 American jobs less than 20 years from now.”

Sadly, these statements are more wishful thinking from the wind industry.

The Feasibility of 20 Percent Wind by 2030

Ms. Bode’s latter statement is presumably based on a Department of Energy study that evaluated a scenario where wind is assumed to supply 20 percent of generation by 2030. The question, of course, is whether that target is likely to be met. According to the Energy Information Administration (EIA) (also part of the Department of Energy) and the International Energy Agency (IEA), a 20 percent wind scenario in 2030 is highly unlikely unless directly mandated by government fiat. Even policies such as a Clean Energy Standard or a Renewable Energy Standard do not reach a 20 percent share for wind generation, according to the EIA.

In EIA’s Annual Energy Outlook 2011, wind’s generation in 2030 is projected to be 159 billion kilowatt hours, about 70 percent higher than wind generation in 2010, but still a mere 3.2 percent share of generation. In EIA’s recent analysis evaluating an 80 percent clean energy standard by 2050, wind generation nearly doubles from the agency’s prediction in the Annual Energy Outlook by 2035.  But an almost doubling in wind generation only provides a 6.3 percent share.  EIA’s analysis of a 25 percent renewable energy standard also does not make the wind target in the DOE report cited by Ms. Bode. In that case, wind receives only a 4.9 percent share in 2030.

The question, of course, is if wind is almost cost competitive with all other energy sources and if there are policies that demand clean energy or renewable generation at levels of 25 percent or higher, why doesn’t wind generation penetrate further? The reason is that wind is an intermittent technology that is literally at the mercy of the wind. If the wind doesn’t blow, there is no generation from wind power, and thus a back-up technology needs to be ready to be brought on line at a moment’s notice. For this reason, Britain is contemplating adding a capacity value surcharge to wind that would pay for the back-up power from fossil fuels when it is needed.

So in the case of a clean energy standard, the big winners are natural gas (even though the standard penalizes it for its emissions), nuclear, and biomass generation, all of which can be used as base load power that provides generation on a continuous basis. In the case of the renewable energy standard, the principle winner, according to EIA analyses, is biomass gasification because it is a base-load generation technology and can be relied on when needed.

Further, Ms. Bode does not mention that once the better wind resources are used up, the cost of wind power increases because the sites are more difficult to build on; they are further away from existing transmission lines, requiring additional transmission lines to reach the major electricity markets; or the wind doesn’t blow as much and thus a lower level of generation is obtained from the same capacity as the wind generators on the better sites. These issues make wind less cost competitive among other technologies. (See the wind resource chart below.)

And, a scenario requiring 20 percent wind generation by 2030, if it were feasible, would require more than 300 gigawatts of wind capacity (or about 13,000 megawatts of new wind capacity each year) and that capacity would require huge land requirements. The Roscoe Wind Complex in Texas, one of the world’s largest wind projects, has a capacity of 781.5 megawatts and covers about 154 square miles—about 0.2 square miles per installed megawatt of wind capacity. Using this example, 300,000 megawatts of capacity would require about 60,000 square miles of land for wind turbines, larger than the land mass of Florida.

This growth in wind turbine capacity would require siting wind units on publicly owned lands where a large percentage of the development sites are located, continued taxpayer-funded subsidies, the building of power lines to remote areas where wind turbines are located, and the public acceptance of noise and other wind-related effects. And, that wind capacity would need to be backed-up with reliable fossil fuel capacity, adding additional cost and reducing the carbon dioxide benefits of introducing this level of wind energy.

The DOE analysis is also predicated on the assumption of very high capacity factors for wind of more than 40 percent. The experience of wind in Texas, the state with the most wind power capacity, finds that the output of the wind turbines can range from zero to 49 percent of installed capacity. However, at peak load (from 4 pm to 6 pm in July and August), the average output of the wind turbines in the Electric Reliability Council of Texas (ERCOT) was 16.8 percent of capacity.  Wind energy does not provide much capacity value when most needed because winds are best in the late evening and early morning hours when demand is lower. Based on a stochastic analysis of the effective load carrying capability of wind in ERCOT, the reliability council uses 8.7 percent of installed wind capacity in its reserve margin calculation.

Subsidies among Energy Sources

While all forms of energy get some sort of incentives as Ms. Bode indicates, some get more than others and that is also true of renewable energy technologies. Another recent study by the EIA evaluated energy subsidies for fiscal year 2010. EIA found that renewable energy subsidies were higher than any other fuel at $14.7 billion dollars in fiscal year 2010, led by biofuels ($6.6 billion) and wind ($5 billion). Fossil fuels and nuclear received subsidies of less than $3 billion: coal received $1.4 billion, oil and natural gas together received $2.8 billion, and nuclear received $2.5 billion.

Evaluating just the electricity subsidies, wind received more than 7 times the amount of subsidies oil and natural gas received for electricity generation, and more than 4 times the amount of subsidies that coal received. (See chart below.) The disparity gets even larger when evaluated on a unit of production basis. Wind was subsidized over 80 times more than the subsidies for conventional fossil fuels based on a megawatt hour of generation. Wind received $56 per megawatt hour compared to $0.64 per megawatt hour each for coal, and oil and natural gas combined.

Source: Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

*Natural Gas and Petroleum Liquids

Source: Calculated from Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

The Cost of Generating Electricity among Various Technologies

Another way to compare technologies is on a levelized cost of generation basis. Levelized costs represent the present value of the total cost of building and operating a generating plant over its financial life, converted to equal annual payments and amortized over expected annual generation. In EIA’s Annual Energy Outlook reference case, a 3-percentage point increase in the cost of capital is added when evaluating investments in greenhouse gas intensive technologies such as coal-fired power plants without carbon capture and sequestration (CCS) technology and coal-to-liquids plants. The 3-percentage point adjustment is similar to a $15 per ton carbon dioxide emissions fee when investing in a new coal plant without CCS technology. This adjustment represents the implicit hurdle being added to greenhouse gas intensive projects to account for the possibility that they may need to purchase allowances or invest in other greenhouse gas emission-reducing projects that offset their emissions in the future. Thus, the levelized capital costs of coal-fired plants without CCS are likely higher than most current coal project costs.

Realizing that coal is being penalized as part of the assumptions of the analysis, one can compare wind’s levelized cost to that of other technologies. As you can see, onshore wind is more expensive than natural gas-fired technologies, and close to the cost of conventional coal technologies with their higher cost of financing. Applying a 2 cent per kilowatt hour production tax credit to wind’s generation cost still does not make it cost competitive among natural-gas fired technologies. And, offshore wind has the second highest cost of production after solar thermal, which is the reason why the Cape Wind Project off the coast of Cape Cod, Massachusetts is having difficulty finding buyers for its wind power. (See chart below.)

Current Wind Industry Jobs

According to the Congressional Research Service (CRS), the number of wind manufacturing jobs has remained relatively flat over the past 3 years at an estimated 20,000 jobs. (See chart below.)  The majority of the 75,000 jobs (60 percent) that Ms. Bode quotes are in finance and consulting services, contracting and engineering services, and transportation and logistics. Only 3,500 jobs were in construction and 4,000 in operations and maintenance in 2010.

Wind turbine manufacturing is responsible for a very small share (less than 1 percent) of the total manufacturing jobs (11.5 million) in the United States in 2010. According to the DOE report that evaluated the 20 percent wind energy in 2030, turbine assembly and component plants would supply about 32,000 manufacturing jobs in 2026. But the American Wind Energy Association’s assessment is that the number would be 3 to 4 times that amount under a long-term stable policy environment. As CRS notes, the real number will be dependent not only on the demand for wind, but also on corporate decisions of where to produce the needed components. Those decisions could very well result in manufacturing jobs outside of the United States. As CRS notes, imports of wind generating equipment increased from $482.5 million in 2005 to $2.5 billion in 2008, held at $2.3 billion in 2009 and decreased to $1.2 billion in 2010 due to lower relative demand for new wind energy, declining prices, and new manufacturing plants in the United States. While European suppliers were the leaders in wind equipment imports to the United States, South Korea and China are now becoming players in the U.S. market.

Conclusion

When all the facts are on the table, wind is not the panacea that Ms. Bode implies from her statistics. All technologies have their limitations and so does wind. We need to recognize the issues associated with each technology and use them according to their strengths without the American consumer and tax payer paying exorbitant fees for the power that they do produce.

As the Solyndra bankruptcy and its half-billion-dollar gut-punch to the U.S. taxpayer reverberate across the clean energy landscape, the Solyndra failure itself can be viewed as a symptom of a disconnect much larger than a loan-guaranteed company going belly-up, sticking taxpayers with the bill. Go back to the start of the green energy movement. We all fell in love with the dangling carrot of a clean energy future where our electricity would come from nature herself in the forms of giant wind farms spanning hundreds of miles of prairie land, majestic, 200-foot, high-tech airfoils whooshing above the deep waters offshore, and mile after mile of uninhabitable desert veneered with photovoltaic panels.

The idea that wind, solar, tidal, geothermal and other renewable technologies are here to free us from pumping carbon dioxide into the atmosphere while they generate the electricity required to keep our advanced societies functioning is patently false. But it’s a seductive vision that environmentalists, governments, politicians, entrepreneurs, media, and the public bought into. Fast forward to Solyndra’s “cool solar technology/no sustainable market for it” failure. What we must start to realize is that no matter how sleek, shiny, sexy and loved the solar and wind energy technologies are, they are doomed to fail. Here’s why.

BASELOAD POWER:  BIG, NOISY AND UGLY

The massive amount of constantly flowing electricity that is required to keep homes, apartment buildings, factories, shopping centers, 911 call centers, water treatment plants, nursing homes, police stations, and the food infrastructure operating will never come from renewable energy. To exist, industrial societies must have what is known in the electrical generation industry as baseload electricity. It comes from big coal, gas and nuclear power plants that deliver millions of megawatts of electricity every day and every night, rain or shine. These plants make our electricity-based lifestyle possible. The output of solar cells and windmills will never satisfy the power consumption needs of the planet’s industrial economies. They are known as “intermittent power sources” for a reason.

THE ONLY REAL CARBON-FREE OPTION WE HAVE

Besides hydroelectric, which requires damming rivers or living within close proximity to an elevated water source such as Norway’s fjords or Niagara Falls, there is only one proven carbon-free option that has the capacity to generate baseload power—nuclear energy. Nuclear plants emit zero carbon dioxide and they are one of the cheapest and safest sources per kilowatt hour of baseload electricity.* Today 440 nuclear reactors are peacefully chugging along worldwide, while 558 new nuke plants are under construction, on the drawing board, in the planning phase or proposed.

BESIDES GERMANY, THE REST OF THE WORLD IS EMBRACING THE ATOM

In the same breath that Germany used to announce it would pull the plug on nuclear power in the days following Fukushima, France, Russia, China, South Korea, Saudi Arabia, Jordan, Egypt, India, the United States and even Japan have restated their support for nuclear energy. France has 58 reactors now operating, the world’s second largest number (the U.S. has 104). France recently invested US$1.4 billion in their nuclear energy program. China‘s goal is to increase nuclear capacity ten-fold to at least 80 gigawatts by 2020, 200 gigawatts by 2030, and 400 gigawatts by 2050. (Four hundred gigawatts is as much total electrical capacity as Japan and France combined have today.) India‘s overall goal is to add 20 megawatts of nuclear by 2020 and to produce 25% of its electricity from nuclear power by 2050. South Korea has 21 reactors producing 18.7 gigawatts. They are planning to more than double their nuclear energy to 43 gigawatts by 2030. Russia has 32 reactors now, with 54 more on the drawing boards. Saudi Arabia, the UAE, Jordan and Egypt just announced that they are moving ahead with $400 billion worth of nuclear projects and South Africa is preparing to accept bids for a one-trillion-rand nuclear power contract for six new reactors scheduled to begin generating electricity in 2024. As John Borshoff, the CEO of Paladin Energy, recently said, “Nuclear is not here because people love it, it is here because there is no option, period.”

*AUTHOR’S NOTE: for an in-depth, updated review of the safety surrounding nuclear reactors and upgrades since Fukushima, please see http://www.world-nuclear.org/info/inf06.html.

Mark J. Morabito, J.D., is chairman and CEO of The Exploration Group, Canadian company providing management, geological, regulatory, tax, corporate development and investor relations services to copper, iron ore, uranium and precious metals mining companies throughout North America. Mr. Morabito is also executive chairman of Crosshair Exploration & Mining, an exploration-stage uranium mining company operating in the U.S. and Canada.

Offshore wind development continues to face strong headwinds in the United States. Offshore wind has been touted as a good alternative to onshore wind because wind resources are generally better offshore, but the reality has been different so far. Offshore wind is far more expensive than onshore wind and even pro-green states like New York are having second thoughts. General Electric is facing lower than expected offshore wind orders and is considering laying off some of its wind workers in Norway. And even with substantial federal subsidies, some utilities are fighting back against the offshore wind industry mainly because of its expense.

The New York State Offshore Wind Project

New York State, which usually is an advocate of green energy, is foregoing an offshore wind project due to its high cost. The project was to develop offshore wind farms for Great Lakes Ontario and Erie, whose cost of construction would be recovered over the next 20 years by selling its generation to the New York Power Authority. The buyers of the power, the New York Power Authority, turned the project down due to its expense.

Five wind developers submitted proposals to develop an offshore wind farm on Great Lakes Ontario and Erie in the range of 120 to 500 megawatts. The lakes are thought to be one of the most reliable sources of electricity generated by wind in New York State because the wind blows uninterrupted. According to the New York Power Authority, a 150-megawatt wind farm would cost between $1.2 billion and $2.0 billion to build and would cost the Authority between $60 million and $100 million annually in power purchases.[i] That translates into a per kilowatt cost of $8,000 to over $13,000, much higher than the estimated cost of an offshore wind farm by the Energy Information Administration of $5,975 per kilowatt.[ii] In fact, the lower figure is over a-third higher.

It seems that New York is facing a similar problem to that of Massachusetts where Cape Wind off the coast of Cape Cod is having a problem finding buyers for its high cost offshore wind energy. Some Massachusetts utilities (e.g. NStar) are realizing that they can meet their state’s renewable mandates by purchasing renewable power from Canada or from onshore wind farms at much lower cost. National Grid, the utility ready to buy half of Cape wind’s power, estimates its deal will cost ratepayers $1.2 billion above the projected market price of comparable energy. In comparison, NStar claims its contracts with three land-based wind farms are $111 million below market price.[iii]

General Electric Rethinking Offshore Wind Operations

General Electric is facing slower than expected growth in offshore wind energy orders and is reviewing its development plans. In fact, it is considering laying off 40 workers in Norway and is holding off on a facility in the United Kingdom until equipment orders can support the plant.[iv] The company is planning to erect a 4.1 megawatt wind turbine prototype offshore in Gothenburg Harbor by the end of the year that the company feels will be good for shallower waters but is facing tough competition from other wind turbine manufacturers.[v]

For deep offshore waters, General Electric is working on a 10 to 15 megawatt wind turbine using superconducting magnets  for which the U.S. Department of Energy is providing $3 million. The project will be conducted in two stages, a development and evaluation stage that includes economic, environmental and commercialization potential, and a commercialization stage to determine its potential in scale and cost. The goal is to generate more wind power at lower cost.[vi]

Department of Energy Funds Offshore Wind Development

The U.S. Department of Energy has funded 41 wind energy projects to the tune of $43 million to accelerate offshore wind development.[vii] The funding is to be provided over 5 years to improve the technology of offshore wind turbines, including control systems and support-structure designs, and to eliminate market barriers that hinder development.

The Department of Energy has already funded innovative solar projects such as Solyndra[viii] which has resulted in a loss of taxpayer money since that company is now bankrupt and cannot repay the government the $528 million that the company has spent,[ix] including a very modern facility with robots and the latest in spas. Solyndra’ s plan sought to cut costs with an innovative cylindrical design that reduced the labor required for installation, but the company could not handle the high manufacturing costs. A similar problem could result with the Department of Energy’s offshore wind investment loans if the technology’s high costs cannot be brought down to a more competitive range compared to existing technologies.

Some Criticisms of Wind Power

There are some critics who complain about the visual appearance of wind turbines. Donald Trump, for example, is fighting an offshore wind farm in Scotland because of the view from his proposed golf course. The offshore wind farm, to be located about 1.5 miles from the golf resort, was to be a 33 wind turbine farm, but has since been scaled back to 11 turbines because of safety issues in the shipping channel serving the North Sea oil industry.[x]

Another criticism is that they kill birds. According to the Fish and Wildlife Service, windmills kill nearly half a million birds a year. The American Bird Conservancy projected that the number could more than double in 20 years if a government wind power goal of supplying 20 percent of the nation’s power by 2030 is attained. Recently golden eagles were found dead near the Pine Tree Wind Farm project, operated by the Los Angeles Department of Water and Power. Laws protect eagles and many migrating birds (e.g., the 1918 Migratory Bird treaty Act), but currently there are only voluntary guidelines for wind power producers.[xi] The irony is that seven oil and gas companies operating in North Dakota were recently brought to task for supposedly killing 28 migratory birds that were found dead near some oil waste lagoons. These misdemeanors carry fines of up to $15,000 for each dead bird and up to six months in prison.[xii]

Other criticisms besides cost, view, and bird kills deal with its intermittency, requiring back-up power; noise pollution; government subsidies; low capacity factors; and small environmental contribution to name just a few. A wind project in Vermont is found to be an example, where it will receive $44 million in federal production tax credits over 10 years, produce only one-third of its rated capacity of 63 megawatts, reduce few greenhouse gas emissions since only 4 percent of the state’s emissions come from electricity generation, remove 134 acres of forest which will increase erosion to headwater streams, and hurt the tourist population.[xiii]

Further, old or broken wind turbine blades cannot be recycled, posing a new problem for the industry. Denmark’s leading business newspaper Dagbladet Børsen recently warned, “As the wind becomes a central part of energy supply, a huge waste problem is growing with similar speed.” A key material in constructing wind turbines, carbon fiber composite, cannot be recycled and is either filling European landfills or is being burned creating toxic emissions. Nearly all turbine blades are manufactured from thermoset plastics, the only material currently known that meets reliability standards due to their relatively high strength and low weight properties. But the stress damage to fiber composites is poorly understood and wear and tear on blades can be considerable, reducing power generation by 20 to 30 percent, and needing to regularly replace blades.[xiv]

Conclusion

Offshore wind farms are struggling in the United States because they are far from cost effective compared to their onshore counterpart or to conventional generating technologies. An offshore wind farm in the United States is yet to be built though several proposals have been put forth. Prudency reviews by utility companies have kept them in check so far. Of course, besides cost, other factors regarding wind are the need for government subsidies costing taxpayers money, low capacity factors and emissions abatement, and environmental issues regarding views, bird kills, noise, and waste.

Just how flawed is the green energy loan guarantee program, you ask? According to the memo’s authors, one wind project in particular will receive $1.2 billion in government subsidies for a $1.9 billion project, making it about 65 percent subsidized. And, the authors omit that the project will only create 400 construction jobs and 35 permanent jobs. In other words, each one of these 35 permanent jobs cost over $30 million each.

The memo, written by Larry Summers, Ron Klain, Carol Browner. At the time, Summers was the Chairman of the National Economic Council, Klain was Vice President Biden’s Chief of Staff, and Browner was the White House Energy and Climate Change Advisor. In the memo, these high ranking officials explain three problems with the loan guarantee program. As Tabarrok explains:

The memo says that OMB and Treasury were concerned about three problems, “double dipping” (massive government subsidies from multiple sources), lack of “skin in the game” from private investors and  ”non-incremental investment,” the funding of projects which would occur even without the loan guarantee.

How much double dipping are we talking about? Summers, Klain, and Browner describe the Shepherds Flat wind project and note, according to them, that total government subsidies for the project are over $1.2 billion. This dwarfs the $100 million investment in the project Google was happy to tout. Here’s the Summers, Klain, and Browner explanation of the Shepherds Flat project:

The Shepherds Flat loan guarantee illustrates some of the economic and public policy issues raised by OMB and Treasury. Shepherds Flat is an 845-megawatt wind farm proposed for Oregon. This $1.9 billion project would consist of 338 GE wind turbines manufactured in South Carolina and Florida and, upon completion; it would represent the largest wind farm in the country.

The sponsor’s equity is about 11% of the project costs, and would generate an estimated return on equity of 30%.

Double dipping: The total government subsidies are about $1.2 billion.

Skin in the game: The government would provide a significant subsidy (65+%), while the sponsor would provide little skin in the game (equity about 10%).

Non-incremental investment: This project would likely move without the loan guarantee. The economics are favorable for wind investment given tax credits and state renewable energy standards. GE signaled through Hill staff that it considered going to the private market for financing out of frustration with the review process. The return on equity is high (30%) because of tax credits, grants, and selling power at above-market rates, which suggests that the alternative of private financing would not make the project financially non-viable.

Carbon reduction benefits: If this wind power displaced power generated from sources with the average California carbon intensity, it would result in about 18 million fewer tons of CO2 emissions through 2033. Carbon reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules).

This is a serious indictment in and of itself, and reading this, one questions how the administration could in good conscience proceed in approving the project. No matter how you slice it, $1.2 billion in subsidies is a lot. As Tabarrok explains:

In my view, the Summers/Klain/Browner analysis was a damning indictment of the Shepherds Flat project. The taxpayers were expected to fund by far the largest share of the bills and also of the risk and in return they weren’t getting many benefits in terms of reduced pollution. In contrast, Caithness Energy and GE Energy Financial Services, the corporations behind the project, weren’t taking much risk but they stood to profit handsomely. I guess that is why they call it “green” energy.

In short, the Shepherds Flat project was corporate welfare masquerading under an environmental rainbow. [emphasis added]

Despite understanding that a loan guarantee for the Shepherds Flat project was completely unnecessary, the administration provided the loan guarantee anyway. No real surprise since the wind turbines come from GE, one of the administration’s favorite companies.

So what does $1.2 billion in government subsidies provide in terms of job creation? According to CNN Money, 400 construction jobs and 35 permanent jobs. In other words, each one of these full time jobs cost over $30 million each. That is a raw deal for Americans.

Tabarrok rightly concludes, “the real scandal is not what happens when everything goes wrong [such as Solyndra] but how these programs work when everything goes right.”

Read all of Tabarrok’s piece here.

Investors Defend the Green Gravy Train

A recent Reuters story explains that green investors are rushing to defend the process that showers them with taxpayer backstop for their loans:

U.S. renewable energy investors defended the government energy loan program at the center of the political firestorm ignited by the high-profile collapse of solar panel maker Solyndra, one of the program’s beneficiaries.

Partners at top private equity firms that have participated in the government’s loan guarantee program for alternative energy described the program’s review process for applicants as “robust” and even more in-depth than in the private sector.

“It’s probably the toughest due-diligence exercise that any of us had ever experienced,” Neil Auerbach, a managing partner at Hudson Clean Energy Partners, a private equity firm that invests in the sector, told the Retech renewable energy conference in Washington on Wednesday.

Auerbach said his experience with the loan guarantee program might reflect the Energy Department’s applying lessons it learned after approving earlier projects, such as Solyndra.

“What we might have seen over these 40 loan guarantee approvals is a program start with a prototype — the first one through the chute was Solyndra — then successive screw-tightening exercises that were going on,” said Auerbach, a former partner with Goldman Sachs.

Solopower, a solar company backed by Auerbach’s fund, received a $197 million loan guarantee this year to retrofit a solar manufacturing plant in Wilsonville, Oregon.

…

Ed Feo, a managing partner at USRG Renewable Finance, said he also found that the level of detail required for the federal program was more than he was used to. He said in his experience the agency conducted “rigorous” oversight.

…

Feo said the loan guarantee program should not be blamed for the fall of Solyndra but should judged on the basis of all its investments, not just those involving a single company.

“If you want to innovate and you want to facilitate innovation, you have to accept the fact sometimes things don’t work and there’s a cost associated with that,” Feo said.

Feo is simply wrong in the quotation bolded above, when he implies that—aww shucks—taxpayers will just have to sometimes eat half a billion dollars and tolerate FBI investigations if they want “innovation.” On the contrary, at one point this country was supposed to be a free market, in which the government left innovation—and more specifically, the determination of how energy would be produced and distributed—to the voluntary private sector.

Bogus Oversight

Besides their obvious self-serving bias in defending the government’s loan guarantees, the green investors quoted above are confusing bureaucracy with actual safeguards. By its very nature, government operations are inefficient and choked with red tape. Any small business owner recognizes the labyrinthine complexity of the tax code and labor laws. Yet these codes are riddled with carve-outs and privileges for special interests. That’s partly why the codes are so complicated.

It’s the same thing with “green” guarantees. The government can’t simply guarantee every loan application with “renewable” in the description; the Treasury would be bankrupt in a month. (Or rather, it would be officially bankrupt, as opposed to its current status as merely unofficially bankrupt.) So the government has to put up barriers, to make sure the gravy gets steered only to those people who really lobby for it.

Conclusion

Despite the defenses of those who are currently enjoying the program, the government’s loan guarantees for green projects are turning out to be more and more crooked. Currently 14 such grants are under investigation. Solyndra wasn’t a lone bad apple.

It would be nice to think that the bureaucratic hurdles for such loan guarantees dovetail perfectly with the requirements for a sensible business plan. But we know that must not be true: If it were, the investors wouldn’t need taxpayer backstops, they would go to the private capital markets for funding.

If the goal instead is to frankly subsidize bad business ventures, because of a non-financial concern for environmental objectives, then officials should at least have the decency to be frank with the American taxpayers that that’s what is going on here.