Minnesotans For Sustainability©
Sustainable Society: A society that balances the environment, other life forms, and human interactions over an indefinite time period.
[Part 2 of 2}
Wind Energy Economics in West Virginia
A description of the environmental, scenic and property value implications and an analysis of the economic benefits and costs associated with existing and proposed “wind farms” in West Virginia
Glenn R. Schleede*
The value of all the federal and state subsidies for “wind farm” developers and owners is in addition to the revenue received by the “wind farm” owner for the sale of electricity.
Owners of “wind farms” in
have indicated that they plan to sell the electricity under negotiated contract
rates. Often, such rates are not publicly disclosed. However, if the 300 MW
“wind farm” being planned by NedPower were to produce at a 30% capacity factor
(i.e., 788,400,000 kWh) and the electricity were sold to an electric utility or
other electricity supplier for $0.03 per kWh, the “wind farm” owner would
receive $23,653,000 each year for that electricity (i.e., 788,400,000 x $0.03).
If the electricity were sold at $0.04 per kWh, the annual income would be
“Wind farm” developers and owners generally claim that their projects will provide substantial economic benefits in the town, county and state where the projects are located. Generally, the claimed benefits include:
· Materials, equipment and services purchased in the area. Any such benefits for West Virginia would appear to quite small since the bulk of the capital investment in “wind farms” consists of turbines, blades, towers, controls, cabling and related electrical equipment that is manufactured elsewhere. (Most wind turbines are manufactured by foreign companies even though the U.S. Department of Energy has spent hundreds of millions in tax dollars on wind energy R&D.) Some transportation services (e.g., for concrete) probably would be provided locally.
· Rental payments to landowners that host the windmills (i.e., turbines, towers) and associated facilities (e.g., substation, cables, transmission lines, maintenance and control facilities). NedPower officials have testified that “landowners will receive approximately $600,000 annually from NedPower in lease payments”30 for its planned 200-turbine 300 MW project. Rental payments would be $100 per year per lease until electricity production begins. When in operation, rental payments would depend on production from wind turbines.31
Information is not readily available to permit determining whether the landowners are West Virginia residents which, if so, might indicate that at least a portion of the money would provide an economic benefit IN West Virginia. Any economic benefit for West Virginia would depend on where the owner(s) live, how and where the income is spent or invested, and whether any or all of it is subject to West Virginia taxes.
· Construction jobs. Generally, “wind farms” can be constructed in relative short time periods because the turbines, blades, and much of the other equipment are produced elsewhere and shipped in for assembly. Construction jobs may last for several months or perhaps a year, depending on phasing of the construction.
NedPower officials have estimated that the project would provide up to 200 jobs during the construction period. Apparently an agreement with the West Virginia Building and Construction Trades Council, AFL-CIO, covering construction labor jobs and the union “…has assured NedPower that all reasonable efforts will be made to utilize local labor in the construction of the facility.”32 However, unless workers with the required skills are available in West Virginia, they would be brought in from other states and the jobs available to local workers probably would be those for laborers.
Data are not readily available on the potential economic benefit to the region that would result from the construction jobs. (Actual experience with the source of workers for construction of the Mountaineer Energy Center might shed light on the likely sources of workers for the construction phase and on the benefits that might accrue to West Virginia.)
However, if construction required 200 employees who were paid an average $25.00 per hour and construction lasted a full year, the employees wages would total $10,400,000 for that year (i.e., $25 per hour x 2080 hours x 200). If only 40% of the workers came from West Virginia –which seems more likely ―and they held the lower paying jobs, the wages for West Virginians probably would total less than $3,000,000. To get a firm estimate of the potential economic benefit to the area, this crude estimate would have to be adjusted to fit more accurately the likely number of jobs, period of construction, the number of employees that actually resided in the area and their hourly wages.
· Permanent jobs. NedPower officials have estimated that, “Once operational, we anticipate the Project will be operated and maintained by a staff of ten to fifteen employees.”33
Apparently much of the operation is autonomous with onsite employment largely for maintenance activities. Assuming all the employees were on site and paid an average of $20.00 per hour, the annual payroll would total $416,000 (i.e., $20 x 2080 hours x 10 employees) to $624,000 (i.e., $20 x 2080 hrs x 15 employees). Again, to get an accurate estimate, these crude estimates would have to be adjusted to fit the facts.
· Personal Income Tax and Sales Tax Revenue. Most of the potential sources of increased tax revenue were discussed in a previous section of this paper and won’t be repeated here.
However, there would be potential additional revenue from state income taxes on worker wages during “wind farm” construction and operation and, potentially, on landowners’ rental income.34 In addition, there would be revenue from West Virginia’s 6% sales and use taxes on a variety of products and services that are not exempt.
If a total of $3,000,000 were paid to 80 construction workers from West Virginia during a 1-year construction period, the personal income tax revenue probably wouldn’t exceed $150,000. If annual wages for permanent employees totaled $520,000 the annual income revenue probably would not exceed $26,000. If all the estimated $600,000 in land rental payments were taxable in West Virginia at a 6% marginal income tax rate, the annual revenue would be $36,000, but only after the “wind farm” was in operation. If the “wind farm” owners purchased $1,000,000 worth of goods and services subject to the West Virginia 6% sales tax each year, the sales tax revenue would total $60,000.
· Corporate net income taxes. “Wind farm” owners may pay some corporate net income tax though, as pointed out earlier, that amount would be reduced due to generous federal accelerated depreciation benefits. Information simply isn’t available to make a good estimate of the potential West Virginia corporate net income tax revenue for a “wind farm” because that amount would depend heavily on the way the owner – or the owner’s parent organization(s) handled its accounting for tax purposes. Conceivably there would be little or no taxable net income. (As noted earlier, West Virginia relies on tax reporting to the federal government.)
benefits. Presumably there would be some indirect economic benefits as the
result of the additional money that does come into the region.
“Wind farm” developers and owners generally claim that the electricity produced from wind energy is “clean” electricity that offsets emissions (particularly sulfur dioxide, nitrogen oxides, carbon dioxide) that would otherwise be released by generating plants using fossil fuels. In fact, 12 as discussed later, “wind farms” are NOT environmentally benign. Wind energy advocates typically do not identify the assumptions or explain the calculations leading to their claims about emission reductions.
However, those claims are exaggerated in several ways. For example:
· Emissions from many fossil-fueled generating stations have been reduced significantly and additional reductions are required by federal and state air quality laws and more are planned.
Also, new lower emission generating units have replaced generation from older, higher emitting units. Advocate claims appear to be based on outdated emissions data.
· Even more important, wind advocates incorrectly assume that kWh of electricity produced from wind turbines offsets electricity from other (usually fossil-fueled) generating units on a kWh for kWh basis. This simply does not occur because, as explained earlier, other generating units must be immediately available to “backup” wind turbines that produce electricity intermittently and with a high degree of volatility and unpredictability. Fossilfueled generating units serving in that backup role are likely to be running at less than their peak efficiency or in spinning reserve mode. While operating in these modes they are continuing to emit.
· Any emission reduction would depend heavily on the specific unit that would have produced the “displaced” kWh. If the unit were hydro-powered, no emissions would be displaced. If the unit was one of the new gas-fired combined cycle generating unit or an older fossilfueled unit that has been equipped with new emission control technology, few emissions would have been displaced.
In summary, any blanket statement about emission avoidance due to wind energy generation should be regarded with suspicion.
The growing opposition to “wind farms” referred to in the introduction has occurred as experience is gained with existing and proposed “wind farms” in the U.S. and Europe. It is increasingly clear that a variety of potentially adverse environmental, ecological, scenic, property value and economic impacts will have to be considered as additional “wind farm” proposals are evaluated by state and local government officials. Unfortunately, these adverse impacts often cannot be quantified accurately in advance.
Examples of the potentially adverse impacts include the following:
1. Scenic impairment: the “ugly as a billboard” issue. Except when “wind farms” are located in remote, sparsely populated areas with little scenic value, the adverse impact of 300 – 430 foot windmills has emerged as a critical issue. Clearly, scenic impact is a matter that is “in the eye of the beholder.”
The alternative point of view was stated graphically by an Oregon official who was recently quoted in the Tri-city Herald (State of Washington). After driving by FPL Energy’s large “wind farm” that is located along the Washington-Oregon border, he was quoted as stating:
“Could anyone think it’s anything other than ugly?” and “How is it different than wanting to put up a big ugly billboard?”35 Scenic impact is likely to be an important issue for West Virginia, recognizing the state’s demonstrated interest in marketing its scenic beauty.
Official West Virginia web sites make extensive use of unspoiled mountain views. Some people find recent vintage windmills to be attractive. Some contend that the windmills would attract tourists while others believe that any such novelty value would be short lived.
2. Property value impairment. Again, when proposed for a remote, sparsely populated area with low value land, neighbors in the area may not be adversely affected or concerned about potential “wind farms.” However, opposition is growing to proposals to place the large machines in areas where there are existing or planned homes and where many property owners are adversely affected and only a few landowners receive land rental payments from “wind farm” owners.
Citizens and government officials should recognize that the potential impairment of property values is inherently difficult to evaluate in advance. Generally, the impact of a large development such as a “wind farm” on property values does not become clear until after the project is in place and the market value of property in the area becomes known through actual sales of land and homes.36
One of the very few actual surveys of residents’ views taken after a “wind farm” was in place was undertaken after neighbors complained about noise and other adverse effects of a 14-turbine “wind farm” in the Town of Lincoln, Kewaunee County, Wisconsin. Among the findings from the survey were that 52% of the residents would not want to live within miles of the turbines and a majority of those living closest to the turbines reported that they felt that the turbines had adversely impacted their health and safety.
Even though that “wind farm” apparently met state-prescribed noise standards, the electric utility that owned the project, Wisconsin Public Service, eventually purchased neighboring residential properties to resolve noise and other complaints. Apparently, some of the homes have been torn down.
3. Adverse impact on tourism, recreation, second home and retirement home opportunities. Concerns about adverse impacts on tourism have also emerged as an important issue.37 Data presented by West Virginia resident John Cooper38 indicates that the greatest contribution to increased economic growth in Grant County’s next door neighbor, Tucker County, during the past few years has been due to tourism and more than doubling of condominiums and second homes. The availability of land in the Grant and Tucker County areas and the scenic attractiveness of the area are often advertised in the Washington, DC, market.
Increased jobs relating to tourism, residential construction, services for visitors and new part and full-time residents –those working and those retiring to West Virginia ―would almost certainly exceed the permanent jobs associated with “wind farms.” Data are not readily available to make estimates of increased property tax revenues resulting from added residential and business property to serve tourists and part and full-time residents.
However, revenues from those sources may exceed the minimal increases in tax revenues associated with the increased tax revenue associated with the proposed 300 MW “wind farm.”
Residential property and business property for serving tourists and new residents do not receive the extremely generous property tax breaks provided for wind energy facilities. In addition, income taxes paid to West Virginia by workers in tourism, residential and related business construction and service industries, as well as new residents – employed and retired, are likely to exceed those paid by permanent employees of a “wind farm.”
4. Environment, health and safety issues. The wind industry and other wind energy advocates have long suggested that wind energy provides an environmentally benign source of electricity but those claims are not being borne out in actual experience. Environmental, health and safety concerns that need to be addressed include but are not limited to:
a. Noise, which tends to vary with a variety of conditions and has presented more problems than is commonly admitted by the wind industry. As indicated above, a utility in Wisconsin with a wind farm that appeared to be within noise regulation requirements ended up buying surrounding residential properties because of noise problems.
b. Broken blade, ice throws and collapsing towers have been a significant concern in many areas, often leading to significant set-back requirements from roads and homes.
c. Bird deaths and interference with migration, are issues that, in the case of proposed “wind farms” in West Virginia have received considerable attention from the U.S. Fish and Wildlife Service.39 The Service’s letters and the studies required by them have already been publicized and will not be summarized here.
d. “Flicker” or “strobe” effects of turning blades, particularly during the time when the sun is near the horizon at sunrise and sunset has proven to be an annoying problem for those living near "wind farms."
5. Potential loss of coal mining and related jobs. As pointed out earlier, electricity from “wind farms” does not actually offset electricity from other generating sources on a kWh per kWh basis as wind energy advocates contend. If it did, the 1,616,220,000 kWh that would be produced by the 3 existing and proposed “wind farms” operating at a 30% capacity factor would displace that many kWh produced by other West Virginia generating units, probably coal-fired units. That would reduce the amount of coal required.
The amount of coal that would no longer be required and job impacts can only be estimated roughly. During 2000, Mt. Storm used 4,801,000 tons of coal and produced 11,595,999,000 kWh of electricity. If its generation had been reduced by 1,616,220,000 kWh or 13.9%, the amount of coal required might have been reduced by roughly 670,000 tons. The actual reduction would be less than this because, despite claims by wind advocates, wind-generated electricity does not offset electricity from other sources on a kWh per kWh basis.
During the first 8 months of 2002, about 16.5% of Mt. Storm’s coal came from West Virginia, 63.5% from Maryland, and 20% from Pennsylvania. Assuming the reduced coal requirement was proportional, and given the average productivity per employee at mines in those states, it’s possible to make rough estimates of potential job losses at mines.
Undoubtedly jobs would be lost, but these numbers should be viewed with great caution because of the many assumptions required.
The rough calculations, shown in the following table, suggest that a total of 69.3 jobs at coal mines would be lost if the three existing and proposed “wind farms” generated 1,616,220,000 kWh of electricity and displaced an equal number of kWh from Dominion Virginia Power’s Mt. Storm generating plant. Roughly 34.6 jobs would be lost if the electricity from wind displaced half as many coal-fired kWh.
As emphasized earlier, the actual kWh displacement resulting from wind
generation is speculative but certainly does not occur on a kWh per kWh basis.
Also, any kWh displacement would not necessarily be from Dominion’s Mt. Storm
If the coal mine job loses were as estimated in the table and wages averaged only $35,000 a year, the wage losses would be:
As indicated in preceding sections of this paper:
· Some of the economic, environmental, scenic and property values cannot be estimated with the information now available, and
· Assumptions must be made in order to develop estimates for other impacts.
Those cost and benefit factors identified in previous sections of this paper, along with dollar amounts where practicable are shown on the summary table on the next page of this paper.
Note especially that:
· Identifiable federal and state tax shelters and other subsidies provided to the “wind farm” owner are particularly high in the initial years of “wind farm” operation; specifically, $69,701,460 in the first year.
· Tax breaks granted by West Virginia would be roughly 10 times the identifiable tax revenue that would be received by the state and Grant County. In addition, the “wind farm” would receive a substantial reduction in West Virginia corporate net income tax due to generous federal accelerated depreciation, including $4,158,000 in the first year of operation.
· The total of $69.7 million in tax liability that could be avoided by the “wind farm” in the first year, as well as the liability avoided in subsequent years represents tax burden that would be shifted to remaining taxpayers.
The largest economic benefits for “wind farm” owners occur in the earliest years
of a project’s life. This fact is important because this “front end loading”
creates an incentive for “wind farm” owners to sell or abandon their projects
once a large share of the subsidy proceeds have been received. That would be
after 6 years in the case of federal accelerated depreciation, and after 10
years in the case of federal Production Tax Credits or when O&M, repair and
replacement costs mount as wind turbines age. No one has long-term experience
with the O&M, repair and replacement costs associated with the large turbines
now being installed.
Among the more dramatic facts demonstrated by the previous summary table is that federal and state tax burden that a “wind farm” owner could avoid would substantially exceed the income that the owner would receive from the sale of electricity during the early years of a project. In the example shown the taxes that could avoided in the first year of the project’s life would be roughly three times the income from electricity sales if the electricity was sold at $0.03 per kWh. Only after the first 5 years would income exceed the tax burden that could be avoided.
The value of the potential tax breaks of $69.7 million in the first year of the project’s operation would be equivalent to $0.088 per kWh of electricity produced if the “wind farm” operated at a 30% capacity factor. The value would decline to $0.0245 per kWh by the 7th year of operation. Again, those values do NOT include the income the “wind farm” owner would receive for the sale of electricity.
As stated previously, it must be kept in mind that tax shelters and other
subsidies shift costs from “wind farm” owners to consumers and remaining
There are few “natural” markets for electricity produced from “renewable” energy sources such as wind ―particularly because of its high real cost and its low quality compared to electricity from dispatchable generating units power by the “traditional” energy sources. With few exceptions, the “markets” that do exist for “renewable” energy are artificially created and forced on electricity suppliers and/or electric customers
There are five types of artificially created “markets” for electricity from “renewable” energy42 and all five result in shifting costs from owners of “renewable” energy generating facilities to electric customers and/or taxpayers.
1. “Green Energy” offered voluntarily by electric suppliers.
2. Mandated “Green Energy” programs created by electric suppliers.
3. Voluntary decisions by certain customers to buy “green energy” even when more expensive than alternatives, perhaps due to a strong personal commitment to environmental objectives, desire to convey a favorable environmental image, or political pressure.
4. Forced decisions by some federal, state and local government agencies and state educational institutions to buy “green energy,” usually at taxpayer expense.
5. State or local government “Renewable Portfolio Standards” (RPS). Fifteen state governments and a few local governments have adopted such standards. They typically require that electricity suppliers obtain some specified portion (usually stated as a percentage) of their electricity from “renewable” sources. The percentages vary widely among states. They usually start low but grow, with some states such as California calling for 20% by 2017.
Particularly from an electric customer point of view, the RPS approach is the most insidious of the alternatives for a number of reasons, including the fact that it protects high cost renewable electricity producers from competition and forces electric customers to pay higher costs. Higher electricity costs are a special problem for low-income people who must pay a larger share of their income for electricity.
Evidence available thus far suggests that very few (probably less than 1% of
“eligible” customers) participate in voluntary programs, probably because of
their added costs and tiny, if any, real contribution to environmental
objectives. Also, the extra money collected by electricity suppliers almost
certainly does not cover both the higher cost of the electricity and the cost of
administering the “green energy” programs
Many conclusions are indicated by the analysis in this paper, but the following deserve particular attention:
· The huge machines produce very little electricity and that electricity is of less value than electricity produced by reliable generating plants.
· “Wind farms” must be backed up by dispatchable generating units and impose extra costs and burden on transmission and electric system management, adding to their true costs.
· “Wind farm” advocates generally understate the true costs of the electricity they produce and overstate both their environmental benefits and economic benefits to states and localities.
· The value of federal and state subsidies for “wind farms” substantially exceed the income that “wind farm” owners receive for the electricity they produce.
· Actions are needed at all levels of government to protect the interests of citizens, consumers and taxpayers when “wind farms” are proposed.
Special attention should be given to the summary of economic benefits and costs on page 16 of the analysis. Not all factors can be priced precisely but the bottom lines are clear:
· Anyone who believes that “wind farms” produce significant economic benefits for West Virginia simply has not considered all the factors that must be taken into account.
· The truly significant economic benefits flow to organizations elsewhere; i.e., to the “wind farm” owner and to the suppliers of the wind turbines and other components – all of whom are located in other states or other countries.
This analysis demonstrates that the real motivation for construction of “wind farms” in the U.S. is the value derived from generous federal, state and local tax benefits and other subsidies ―not environmental benefits. “Wind farms” are not environmentally benign.
[Return to Part 1 of 2.]
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