Minnesotans For Sustainability©
Sustainable Society: A society that balances the environment, other life forms, and human interactions over an indefinite time period.
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Minnesotans For Sustainability©
Sustainable Society: A society that balances the environment, other life forms, and human interactions over an indefinite time period.
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Wind Energy Money Changing & Wealth Transfers
Glenn R. Schleede
Mr. Tim MacDonald Dear Mr. MacDonald: Thank you for your July 2, 2003, letter (copy attached): · Indicating that Meridian is in the business of brokering Section 29 and 45 tax credits, with plans to focus on the extensive tax credits available for wind energy, and · Asking that I help you understand the reasons why wind energy does not really have all the advantages that its supporters claim. In summary, I do not propose to help you because I believe: · Your letter is evidence that you have not done the objective research that would, if undertaken, reveal the answers you are asking me to provide. · Federal tax credits available under Sections 29 and 45 of the Internal Revenue Code often: · Encourage investments in projects that are undertaken for tax avoidance purposes rather than sound business reasons. · Distort private sector capital investments by directing capital to projects with little intrinsic merit. · Shift tax burden from highly profitable organizations to ordinary individuals. · Encourage investments in projects that help push up consumers’ electricity prices. · Result in damage to environmental, ecological, scenic and property values that has not been taken into account by lawmakers and regulators. · Are not in the national and public interest, despite the fact that they may be legal. Based on
your letter, it appears that Meridian plans to serve as a “money changer” by
using faulty federal and state tax law and tax policies for wind energy to aid
in transferring wealth (hundreds of $ millions) from ordinary taxpayers and
consumers to organizations with high profits that wish to avoid taxes. Such a role probably is quite
legal. Whether helping to load more tax burden and high (regressive)
electricity costs on ordinary citizens is morally acceptable is a separate
consideration. My sympathies in this matter lie with the taxpayers, electric
customers and citizens who would bear the economic burden as well as the cost of
impaired environmental, ecological, scenic and property values resulting from
“wind farms.” Normally, I
would be quite willing to help keep tax dollars from flowing to Washington where
they are wasted with such abandon -- as illustrated by the hundreds of millions
of tax dollars that flow through the US Department of Energy (DOE) each year. As
you probably know, DOE and its predecessors have spent over $100 billion on
“energy R&D” that has produced little that is technologically sound,
economically competitive and environmentally acceptable. For example,
DOE has spent hundreds of millions on wind energy R&D, often using the argument
that this was an “investment” in technology that would give the US an advantage
in world markets. However, some 90% of the wind turbine market is supplied by
foreign companies. The dollars being spent for wind turbines imported for “wind
farms” in the US are, like dollars for imported oil, a part of the US balance of
payments deficit. My normal
desire to keep tax dollars out of Washington does not extend to either:
1. Unwarranted Section 29 and 45 tax credits which, demonstrably, are among the
more wasteful and outrageous measures pushed through the Congress by various
special interest groups. For example, you may be aware that Section 29 tax
credits for coalbed methane at times exceeded the wellhead market price for
natural gas. Also, the abusive use of “synfuels” tax credits is nearly
legendary. The recent Wall Street Journal story indicating that the US Treasury
Department is finally preparing to clamp down on this abusive tax credits is a
welcome sign.
2.
“Windfall” tax breaks and subsidies now being captured by the wind energy
industry at the expense of the nation’s electric customers and taxpayers.
Contrary to the claims by wind energy advocates, wind energy may now be THE most
heavily subsidized energy source WHEN CONSIDERED IN LIGHT OF EITHER ITS CURRENT
OR PROSPECTIVE CONTRIBUTION TOWARD SUPPLYING THE NATION’S ENERGY REQUIREMENTS.
Many federal, state and local tax breaks and subsidies (some from regulators)
are now available for commercial scale windmills even though the huge machines
produce very little electricity. The list includes:
a. Federal
five-year double-declining balance accelerated depreciation (MACRS[1])
which, with the recently enacted depreciation “bonus,” permits “wind farm”
owners to deduct 60% of the capital cost[2]
of a “wind farm” from otherwise taxable income in the 1st tax year, another 16%
in the 2nd tax year, and the remainder over the next 36 – 48 months.
b. A
ten-year, $0.018 per kilowatt-hour (kWh) Production Tax Credit which permits the
owners of “wind farms” or their parent companies to deduct additional millions
of dollars each year from their tax liability.
c.
Depreciation deductions from income that would otherwise be subject to state
corporate income tax in states that conform their corporate taxes to the federal
income tax system.
d. Dozens of
state and local government tax breaks, enacted in response to wind industry
lobbyists, including (depending on the state) state production tax credits,
reductions in or exemptions from business and occupation taxes, sales and use
taxes, and state and local property taxes. Some reductions in the 85% to 95%
range.
e. Direct
DOE subsidies (via contracts, grants and subcontracts) for wind energy R&D and
for wind promotional activities carried out by DOE “national laboratories,”
trade associations and numerous “non-government organizations” that have been
created to promote expensive “renewable” energy.
f. Similar
state subsidies (e.g., in New York), which are provided to “wind farm”
developers from funds collected from electric customers via so-called “public
benefit funds.”
g.
“Renewable Portfolio Standards,” (RPS), enacted in several states (and proposed
as a federal measure), which shift additional costs to electric customers. This
insidious subsidy forces electric distribution companies to purchase high cost
electricity from “renewable” energy companies and pass energy and administrative
costs not recovered through “green” programs on to all electric customers.
h. “Green”
energy programs that are forced on electric distribution companies to provide a
market for high cost renewable energy.
i.
Mandated or voluntary “green” energy purchases by federal, state and local
government agencies and schools, with the higher cost of renewable energy borne
by taxpayers.
j. Costs
of building electric transmission capacity to serve “wind farms,” with costs
shifted by regulators from the “wind farm” owners to electric customers.[3]
Examples include a $148 million Xcel project in Minnesota and capacity additions
in Texas.
k.
Arbitrarily awarded “capacity” credits for “wind farms” that exceed the true
contribution that this intermittent, variable, and largely unpredictable source
can provide. My preliminary estimates indicated that tax
breaks and subsidies for wind energy from the first few items in the above list
will easily exceed $300 million in 2002 and will be higher in the years ahead. The wind
industry’s claims that it does not get its fair share of government subsidies
should be considered in light of the small contribution that wind is expected to
contribute in supplying US energy requirements. This small contribution
(despite the enormous growth in subsidies) can be seen in the following table
that is based on the Energy Information Administration’s (EIA) Annual Energy
Outlook 2003. Energy Source
Actual 2000
EIA Forecast for 2025
Quadrillion Btu
% of Total
Quadrillion Btu
% of Total Petroleum products 38.39 38.60% 56.22 40.40% Natural Gas 24.07 24.20% 35.81 25.73% Coal 22.64 22.76% 29.42 21.14% Nuclear Power 7.87 7.91% 8.43 6.06% Conventional
Hydropower 2.84 2.86% 3.12 2.24% Other .31 .31% .07 0.05% Sub-Total –
Traditional 96.12 96.64% 133.07 95.62% Geothermal 0.30 0.30% 1.02 0.73% Wood 0.41 0.41% 0.40 0.29% Other Biomass 2.07 2.08% 3.42 2.46% Municipal Solid Waste 0.31 0.31% 0.44 0.32%
Solar Thermal, electric & hot water 0.06 0.06% 0.09 0.06% Solar Photovoltaic 0.00 0.00% 0.01 0.01% Ethanol 0.14 0.14% 0.34 0.24% Wind 0.05 0.05% 0.37 0.27% Sub Total –
Non-Hydro renew. 3.34 3.36% 6.09 4.38% Total 99.46 100% 139.16 100% As the table shows,
fossil energy sources (petroleum, natural gas and coal, combined) are expected
to supply 87.27% of US energy requirements in 2025 – or 323 times the 27/100 of
1% expected from wind. If wind subsidies totaled $300,000,000 in 2002, the
industry’s “fair share” argument would suggest that subsidies for fossil energy
sources should be at least $96,900,000,000! Clearly, the wind industry’s claim
is without merit.
The implications of your activities Please consider seriously the fact
that subsidies for wind energy are shifting hundreds of millions of dollars in
cost from “wind farm” owners and placing it on the backs of ordinary taxpayers
and electric customers – with this extra burden then hidden in tax bills and
monthly electric bills. Does Meridian really want to participate in, encourage
and profit from this activity? Please note also the point that
subsidies distort investments by directing capital toward endeavors that often
have little long-term value. The federal and state governments are repeating a
mistake made during the 1980s when tax credits were the motivation for building
thousands of windmills in California which produce little electricity. Many were
abandoned once tax benefits were exploited – resulting in California’s “windmill
junkyards.” Finally,
please note that the high front-end tax benefits for wind energy provides an
incentive for (a) similar abandonment of today’s “wind farms” once tax benefits
have been captured,[4]
and/or (b) “churning” of “wind farm” ownership to permit successive owners to
take advantage of lucrative accelerated depreciation benefits. I have some doubt whether your
research has been as thorough as you suggest. Your questions suggest that you
have focused primarily on promotional information from the wind industry, DOE,
the National Renewable Energy Laboratory (NREL), and various wind energy
advocacy groups – none of which can be relied on for objectivity. You should
have found answers to most of your questions if your research had extended to
such sources as the following:
·
The growing number of articles in the general press on opposition
to proposed “wind farms.”
·
Open literature and web sites that include analyses and commentary
from individuals and organizations that are not biased in favor of wind energy.
·
Web sites sponsored by organizations that actively oppose wind
energy because of its adverse impacts on environmental, ecological, scenic
and/or property values, and sites that encourage discussion of the issues that
are involved. Such sites exist in the US, UK, Denmark, Germany, Spain, Italy,
Australia and probably other nations.
·
Numerous papers that I have written and distributed. While not important to your plan to
capitalize on faulty government tax policies, you may want to note that most
claims about the per kWh cost of electricity from wind turbines are without a
solid foundation and are often understated. For example:
·
Often, those calculations are based on assumed turbine (and
related windmill components) lifetime of 20 years and assumptions about O&M,
repair and replacement costs. In fact, no one has experience with today’s
generation of wind turbines over a long enough period to demonstrate the
validity of those assumptions.
·
The claimed per kWh costs often ignore the fact that the generous
subsidies for wind energy described above shift large portions of the true cost
from “wind farm” owners and hide them in bills paid by ordinary taxpayers and
electric customers.
·
The claimed per kWh costs generally do not include the true cost
of backup generation, integration of electricity from intermittent wind
generation into electric grids, or transmitting electricity from “wind farms” to
areas where the electricity can be used. I hope
that the above information will explain adequately why I do not wish to provide
the help for Meridian’s venture that you requested in your letter (attached).
In summary, like the tax benefits you wish to exploit, I do not believe that
your venture would make a positive contribution to the national or public
interest. Sincerely, Glenn R. Schleede Attachment: Letter from
Mr. Tim MacDonald, Senior VP, Meridian. Endnotes:
Dear Mr. Schleede;
My name is Tim MacDonald. I am a Senior Vice
President at Meridian Clean Fuels. We are an affiliate of Meridian Investments,
Inc. Meridian is the largest independent broker in the tax credit industry.
Meridian Clean Fuels is a Meridian company that specializes in energy-related
tax credit programs under Section 29 and 45 of the Internal Revenue Code. This
includes Wind.
I have been researching the wind industry for
some months now, in an effort to understand all the complex policy and economic
issues. I have found many sources advocating wind. Your name continues to
surface as a major opponent of wind. As Meridian gears up to
begin representing the wind industry in the tax credit market, it is very
important to us that we represent these investments fairly, but also accurately.
We are very sensitive to any countervailing concerns that could adversely affect
the long term viability of the Production Tax Credit program orthe wind
industry, generally.
Unless I have missed something, however, it
appears that your objections to wind are based entirely on cost, arguing that
wind is just more expensive than combustion technologies, and cannot compete on
price. It is interesting that you do not appear to have addressed the one issue
that seems to drive all the advocates for wind, and that is the environmental
benefits from clean generation. It would be of significant
benefit to Meridian, if you would be willing to comment on the following
assertions.
1.
There is an environmental cost to combustion generation that is not
reflected in the current market prices for electricity produced from fossil
fuels.
2.
Wind is clean generation, that has no environmental cost attached.
3.
The incremental difference between the cost of clean generation from wind
and the cost of polluting generation from combustion represents a useful and
affordable measure of the environmental cost of combustion generation.
4.
Any reduction in adverse environmental impact achieved at a national
level is worth any incremental increase in the cost of generation, overall -
although there are important unresolved issues regarding the question of who
should pay those incremental costs.
5.
The challenges presented by introducing intermittent wind generation into
the existing transmission grid reflect an obsolete grid design that is the
legacy of decisions made in the early days of the electric power industry, under
very different circumstances. This legacy design is increasingly inadequate to
today's power needs on many levels, with the adoption of clean generation being
only one. The grid needs to be redesigned, anyway, so why not design a new grid
that can handle as much clean generation from wind as we can harness, consistent
with the competing goals of adequate supplies of electricity with no meaningful
adverse environmental impact for the lowest possible cost.
Whatever time you are willing to invest in
sharing your thoughts on these points will be much appreciated. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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