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 3)
Minnesota’s Energy Future:
Minnesota Senate: Commerce and Utilities Committee
Wind Power in Minnesota
February 26, 2003
Minnesota’s Energy Future: Evaluating Windpower©
In addition to benign environmental claims the primary advertised attribute of windcommerce are the economic benefits to the local communities. However, it is state and federal windpower generosity that provides a substantial windfall to individual farmers. There is more to the apparent economic benefit argument than generally heard, thus the economic impacts should be further evaluated.
One Minnesota report making the circuit promoting windcommerce states that “from a job standpoint residents of the Plains which have suffered boom-and-bust employment in oil and coal should find particularly appealing the fact that wind development creates about fifteen jobs for every million dollars of investment.” “Anonymous” —to protect the reputations of the writers of a state report! Most folks in the Midwest would be surprised to learn that they had suffered from problems in the oil patch or with coal fields —the Midwest states have no commercial oil and only the Dakotas have coal reserves —and are doing quite nicely with coal sales! Using Texas and Oklahoma to market windcommerce in Minnesota and adjacent states appears highly questionable.
The reasonableness of the state windcommerce “job creation” numbers will be evaluated using the Buffalo Ridge, Minnesota project.
1. $50 million investment and 15 jobs per $1 million, then x $50 million = 750 jobs;
Add annual wages and benefits. Assume: $50,000 non-professional, $75,000 professional; and that 80% are non-professional, thus,
2. 600 x $50,000 = $30,000,000 (80% x 750 = 600); and
3. 150 x $75,000 = $11,250,000 (20% x 750).
The Enron Wind Company suggests a less optimistic scenario. The company found that the Lake Benton I (Buffalo Ridge), 107 MW project required about 150 temporary construction workers and the Lake Benton II, 104 MW project only 90. The total ongoing positions for these two very large windcommerce projects number only about 20 workers. Using the average 80:20 ratio from the preceding results in an average wage and benefit of $55,000, thus the first two buffalo Ridge projects produce approximately $1.1 million in additional annual labor expenses. It is evident the actual experience is a small fraction of the employment promises.13
The impacts on local labor markets and wage scales are also an important consideration. There are negative effects on the local labor market. The labor market in most rural areas is tight with limited opportunity for rapid skill or talent changes and upward mobility. Because of local labor frictions and shortages, major technological developments such as windcommerce launched in rural areas will require hiring employees already employed by rural companies, small local stores and shops, and small and mid-sized manufactures. Because of state subsidies and mandates windcommerce compensates and has superior employee benefits than local business. Thus, it tends to siphon the limited available workers from other businesses in the community. The result is that the mainstream local community suffers a labor shortage and potential inflationary wage spiral at the less experienced and skilled levels of the community.
In order to replace these low-wage local workers the community will attempt to attract workers from distant rural and larger cities. The area may also become a magnet for illegal aliens and to some in the business community, a reason for increasing legal immigration. Because population growth is the fundamental energy problem, to increase immigration is counterproductive to a sound energy policy and to containing sprawl. Immigration’s sole function would be to misallocate already increasingly scarce economic and natural resources and reduce long-run economic activity. Of course sprawl would be pandemic under any windpower development scenario.
If the development were sponsored by a utility or a non-utility contractor (as is frequently the case), the contractor’s non-local and out-of-state employees will be primarily responsible for construction and administration. The wages paid will in great part flow away from Minnesota to the home states. Contractor firms will draw what labor may be available from the local non-skilled labor pool for temporary and unskilled ongoing maintenance needs. Administration and skilled positions are unlikely to involve significant numbers of local employees. This has been the experience at Lake Benton, Minnesota.
In many respects windcommerce is a reallocation of many existing economic niches, taking jobs from other local area wide firms is an example. Thus, a reallocation of economic activity may give the appearance of an increase in economic activity because new economic sectors (rural farm communities) may be stimulated but there is little overall regional economic change —the former economic sectors are similarly diminished. Indeed, because employment and economic activity follows efficient energy patterns, windpower’s excess energy requirements will diminish overall state employment.
In addition to the higher generation costs of windpower are the administrative costs and investment return of an additional layer of utility company. The added windpower layer should increase local consumer costs. Indeed, helping to explain the subsidies, were subsidies not wrapped around windcommerce it would not be a growth industry. Reallocation implies that costs to local communities and users are shifted to distant communities and users. Reallocation implies that purchases of products and services by local utilities to local companies in some measure will decline and thus reduce local sales and employment opportunities.
Other than the additional expenses unique to windpower this last point is not significantly different from the normal production expenses paid by Xcel. The revenue paid to the windturbine company will reduce overall local economic activity if the local cost of windpower exceeds the previous baseline kWh cost; the probability is that the net economic impact of windcommerce is a reduction in state economic activity. Requiring Xcel Energy to purchase the output gives the appearance of money flowing within Minnesota, yet Xcel is only a conduit passing on to the out-of-state owners all ratepayer paid costs of windpower, including an investment return. Xcel, in addition, adds another layer of administrative fees and additional investment return.14
On a rise in the center of the most wind prone area in Minnesota, southwestern Minnesota's Buffalo Ridge is the posterchild for windcommerce in Minnesota.
With an average wind speed of almost 15 miles an hour the area was an obvious first choice for large-scale windcommerce development. Discussed previously under wind potential, the area is the only significant Minnesota area capable of supporting windcommerce. Although at the minimum for windcommerce, the relatively high average wind speed in the region effectively produces electricity. The site's direct energy output is only slightly more expensive than traditional gas fired generators. Although it's not the selling price, Xcel Energy buys the electricity under contract at the price of 3¢ to 4¢ a kilowatt-hour ($30 – $40 per MW) then sells it back at 8¢ per kilowatt-hour. Subtly encouraging construction of natural gas fired generators, the mandated price paid (i.e., energy cost) approximates the cost of power generated by gas-fired turbines, the current source of choice for utilities seeking new capacity.
Although the purchase price set by Minnesota rules appears in the reasonable range, it is generous, a large but subtle subsidy. The correct price would be the established price for any short term purchased power. This is the cheapest price a utility pays for additional electricity. If the wind-generated electricity is transferred to the Twin Cities area, unsuspecting consumers in the Twin Cities would be compelled to pay significantly higher prices than energy obtained from their normal sources. In addition to other price factors, the higher price is the combination of the state’s mandated 3¢ per kWh purchased cost of power and the 5% – 10% increase due to cost of transmission.
It may also be considered a subsidy for more expensive gas fired generating plants. The Montana Public Utilities Commission explicitly recognized the correct price schedule in a recent order. In a $65 million windcommerce project working through a local subsidiary, Navitas Energy (of Minneapolis) proposed three rates, $32.75, $31.65, and $28 per MW. The Minnesota rate is in the middle of the proposed Montana rates. The Montana utility commission recognizing the proposed rate would be a substantial subsidy, said that the appropriate rate is the short term purchased power rate and granted the rate of $10 per MW (1¢ per kWh).15
According to Xcel Energy there are currently about 450 windturbines in the Buffalo Ridge area with design capacity of approximately 300 MW (average windturbine size about 0.75 MW). The company plans to more than double the current output within ten years. Again, important cost data were not provided.16
The Lake Benton I Project (Buffalo Ridge) was a substantial windpower development. In 1998 the 107 MW, 143 -250’ high windmill project (average size about 0.75 MW) comprised about 73% of the additional 147 MW of wind energy added in the entire U.S. at the time.17
As mentioned previously the Buffalo Ridge project was the outcome of 1994 legislation. At the time a quid pro quo traded off unpopular nuclear power for windmills. One element of the arrangement was to add 425 MW of additional windpower by 2002. In exchange the legislation permitted Xcel (Northern States Power, NSP) to store nuclear wastes at its Prairie Island nuclear plant. The reason was that the existing storage permit was approaching its maximum and would have forced the shutdown of the nuclear plant.
The agreement required Xcel (NSP) to purchase electricity from the project and prevented the company from –temporarily– developing its own windcommerce sites. A subsidiary of the now defunct Enron was the legislated development choice. As will become evident in the discussion of subsidies, there are compelling reason a seller would want to sell and a second buyer to purchase after a reasonably brief period ―approximately five years.
The trade of Buffalo Ridge for Prairie Island put the state, Xcel, and environmentalists in a uniquely conflicted position. Douglas Jehl of the San Antonio Express-News said of the deal “that arrangement was part of a bargain that has allowed the utility's nuclear power plant to stay in operation.” While remaining a substantial player in windcommerce developments, Xcel's (NSP) only downside was the temporary prohibition of constructing its own developments. The Xcel ratepayer appear to be least involved —now paying higher rates and subsidizing developments that may not benefit but the few. The nuclear facility was to remain in operation, storage canisters of stored nuclear wastes funded by ratepayers, and the additional costs of windpower and income to the company and developers flowing through to ratepayers. The Prairie Island nuclear waste storage issue will be revisited in 2007 when the permits require renewing.18
On the final day of 2001, to promote the Buffalo Ridge area Xcel announced the planned construction of additional transmission lines for windcommerce developments. The reason given was to provide additional lines to take advantage of the increases in windpower generated energy. The company said existing lines have reached their transmission capacity limits. In some respects then, the development appears to be a prudent enlargement of the Midwest electrical grid.
The line will connect Sherburne County (Monticello) on the north side of Minneapolis (161-kV), Lakefield (near Fairmont —south of Minneapolis), Nobles and Murray counties in the far southwest near Pipestone (and Buffalo Ridge), Minnesota (345kV lines), with Sioux Falls, South Dakota. It will likely connect the wind developments in Storm Lake Iowa as well. The new transmission lines, it was stated would also transmit electricity from a new biomass power plant under development in Benson, Minnesota, site of the Buffalo Ridge. No cost data were provided.
Because there is insufficient demand in southern Minnesota, northern Iowa, and eastern South Dakota to utilize all of the available and planned windpower increases, the issue becomes one of determining which direction energy will flow. Apparently the intention is to isolate a regional electrical power grid such that the local community will be served by wind generated electricity during windy periods and remain connected to the greater grid as a backup and the primary energy source. The temporarily surplus energy produced during windy periods will be wheeled (transported via transmission lines) out of the local area. The wheeled energy it is thought would produce additional local revenues. Perhaps the intention is for customers as distant as Minneapolis and St. Paul to use electricity generated from windmills or biomass as distant as southwestern Minnesota.
It may be designed with good intentions for the local community, however windpower generated electricity is relatively expensive to produce and very expensive to transport. While the entire U.S. electricity grid uses AC current, windpower produces DC current which cannot be transported by conventional methods any distance. An extremely energy consuming process, DC current must either be constantly boosted in transmission or be converted into AC current before transporting. The difference in energy loss in transmission between AC and DC is not an issue. In order for windpower to transport its electricity it must utilize transmission facilities used and produced by traditional baseline energies ―a substantial and little realized subsidy. The true cost of windcommerce would require constructing a duplicate transmission system that would be fully utilized between 1/4th and 1/3rd of the time. Some propose the use of supercooled lines to reduce line losses. The use of supercooled transmissions cables can reduce line losses to negligible amounts. However, the proposal comes with a high dollar price of grid re-construction and the promise that any break in the line will result in the meltdown of the entire system. The re-construction of the transmission system also requires generous quantities of energy generated by baseline energies. The Xcel transmission program would entail an enormous subsidy for windpower paid by distant ratepayers with very minor cost savings from existing facilities in line loss reductions.
Because total utility costs are averaged into ratepayers’ bills, ratepayers in non-windcommerce user areas are compelled by legislation to provide funding for the expensive construction and delivery cost of windpower generated electricity for customers miles distant. Conversely, those same distant windturbine based ratepayers will pay lower rates than justified by their energy use and sources. The subsidies are considerable and evident but seldom understood by ratepayers.19
Given a choice, it is unreasonable to assume Twin Cities area residents will choose purchasing very expensive electricity produced almost 200 miles way. When the Twin Cities is surrounded by large relatively inexpensive baseline generating facilities and with ready access to inexpensive hydropower generated electricity from Canada, common sense suggests there maybe another reason.
Because windturbines operate effectively between 22% and 33% of the time, either other sources of energy must be convenient or a means of storing wind-generated electricity be available. The question of matching demand becomes apparent given the research regarding wind availability mentioned previously. Windpower is generally not directly available during periods of high electrical demand on a daily or in most of the country, seasonal basis. Those stifling heated days of summer and glacial days of winter characteristic of Minnesota and the Midwest are seasons of greatest energy demands, yet the weakest periods for wind.
A genuine windpower conundrum, large windcommerce installations require existing baseline electric generating facilities to initially develop the windturbine materials, the installed site, and serve as a primary energy source when windspeeds are inadequate —the majority of time.
The implication is that the windcommerce option implies recklessly overbuilding the entire wind producing and transmission complex and transporting the excess electricity over great distances to areas of low wind conditions. Because the majority of time on a daily or seasonal basis windpower is not adequately productive, a second option —providing an economical means of energy storage if windcommerce is to be developed. The practical implication is that a backup traditional fuel based generator is required. To overcome this dilemma, many of the larger-scale windcommerce installations being developed today are designed to use natural gas fired boilers in tandem with windpower.
In other words, windcommerce is another expression for significantly increasing the consumption and rapid depletion of natural gas.
Further discussion of the second option —the use of batteries to store energy for smaller windmill applications, is warranted. The storage costs for small producers suggest the relative degree of similar costs for large commercial producers. Batteries or other storage media add another level of complication and expense to the commercialization of wind. Batteries require energy to manufacture, space to store, significant quantities of energy to maintain efficient operating warmth in winter, sophisticated and costly electronics, expensive recharging, and can impact the environment when its useful life is finished. The capital and recharging costs for storage indicates this expense is substantial, approaching one-half the capital investment costs.
Because smaller windmills are often promoted by state and federal authorities for many local applications —farmers, ranchers, agriculture users and the occasional individual, the estimated cost of a modest sized 20 kW wind generator will be used to demonstrate the economics of smaller windmills.
Typical installed cost of a 20 kW windmill in the Midwest region is about $45,000 with maintenance of approximately $500 per year. Amortizing these costs over 20 years implies a fixed annual windpower expense of $4,250. If winds average about ten miles per hour the windmill will average roughly 20,000 kWh per year output; at twelve miles per hour, 32,500 kWh, and at eighteen miles per hour, about 54,000 kWh per year.
Using the above kWh and assuming a generous price of 10¢ per kWh results in annual revenues of $2,000, $3,250, or $5,400 respectively depending on average wind speed. To place these wind speeds in perspective, note that the 18 mile per hour figure assumes average wind speeds three mile per hour higher than that available at Minnesota's best commercial wind site, Buffalo Ridge. The implication of small-scale windmill use is that only under high consumer price scenarios is it justified and only if wind speeds are close to double the Midwest average. The only possible means of managing installed costs would be for the installer, contractor, and electricians to perform their duties pro-bono —without pay— possible and practicable at the farm level. In that case, the installed cost could be roughly 25% lower —still uneconomic.20
To the purchase and installed price, the additional cost of electricity storage must be considered. Using the following —and highly optimistic assumptions of kWh generation and sales, one obtains,
1. 20 kW generator can develop 480 kWh per day (20 x 24hrs);
2. 14,400 kWh/month (480 x 30); and
3. 172,800 kWh per year (14,400 x 12).
4. 0.3 x 172,800 = 51,840 kWh per year (assume load factor of 30%).
5. @ $0.10/kWh = $5,184 of sales revenue per year.
6. Each battery bank cost $60 x 57 = $3,420;
7. x 3 banks = $10,260; and
8. Are replaced every 5 years, $2,052 per year ($10,260 ÷ 5).
examine the time periods and discharge and recharging cycle costs. Assume a
maximum safe discharge rate of 1/10 AH per battery,
9. 80 mAH for ten hours (800 ÷ 10);
10. 3 x 57 batteries = 80 x 171 = 13,680 mAH; and
11. 13.7 x 13,680 = 187,416 watts, (13.7 is voltage of fully charged battery; volts x amps = watts); or
12. 187.4 kWh safe discharge over ten hours (about equal to 18 -100 watt lightbulbs).
13. 13.7 x 800 = 10,960 watts per charge (10.96 kWh);
14. 187,416 kWh per charge, 1.874 mw (3 x 57 x 10.96); and
15. 187,416 x $0.10 per kWh equals $18.74 to fully recharge the 171 batteries.
Therefore, the energy requirement for a single complete battery cycle exceeds 9% of total potential windturbine capacity (1.87 ÷ 20 = 9.37%).
However, the energy is stored for future use, not lost. It is irrelevant if the windmill is generating electricity for system use or battery storage, the consumer use of the kWh is the same, only the kWh losses will be different. Thus the $18.74 does not represent the actual cost per charging cycle overtime.
The additional expense to the consumer is the energy losses involved in charging the batteries and the approximately 2% per day lost in battery storage. If these are conservatively assumed to be 15% (9% + line + storage losses), the cost of storage batteries can be found by summing the purchase price and 15% losses of the potential battery in storage.
In this example, the per charge cost would approximate $2.81 or 281 kWh per charge, (15% x $18.74). Moreover, the additional cost is not $2.81 but because on average the charge/discharge cycle will continue over 2/3rds of each day on average and since the charge cycle is ten hours, not quite two cycles can be accomplished each day (and assuming the wind has sufficient velocity).
16. 24 hours x 365 equals 8,760 hours x 2/3 equals 5,840 charge hours per year;
17. One full cycle equals 18 hours (8 charge, 10 discharge);
18. 5,840 ÷ 18 gives 324 cycles per year; and
19. Each cycle @ $2.81, 324 x $2.81 equals $910 per year.
20. Total storage cost equals $2,052 + $910 or $2,962 per year.
The capital costs are sunk costs and non-productive the majority of time. In terms of an energy system it is a fixed and disturbing cost. Worse, storage expense will likely apply to virtually any alternative energy system. Note that this cost does not include the capital costs of land, the windturbine, administration, maintenance, or additional cost of converting DC current to AC line voltage, all of which are expensed whether the electricity is from storage or the windturbine.
The bottom line of windcommerce economics is that for wind development to be the primary electrical energy source, it will require more than three times the plate rating capacity of generators and storage in order to reliably match demands. Because conventional baseline generators are required to be on constant standby and the capital cost of windcommerce is more than 20% greater than baseline coal plants, it is clear the investment in windpower is misdirected.
In Minnesota and in other states “demonstration” windprojects have been constructed with the purpose of boosting acceptance and to sell associated infrastructure products. This Testimony will use a hypothetical “demonstration” project as a means of outlining a number of the economic and environmental issues overlooked in industry promotions. Promotions include guided tours targeting business groups, government officials, and students and their teachers, for example. The primary target groups are, however, those interested in promoting, purchasing, and developing windcommerce sites, legislators, farmers, and investors.
Contrary to the acronym “windfarm” chosen by windcommerce advocates, these are serious entrepreneur businessmen who have discovered a government and industry sponsored energy niche taking advantage of numerous subsidies to substantially increase income and eliminate or redirect the risks of doing the business of windpower.
Subtly, the demonstration project also assumes the sale of the land will be used to deconstruct the entire project and return the land to its original standing. This is an unlikely assumption. The larger assumption is that the property is purchased rather than rented. The reasons are clear: owners reap the generous subsidies ― property and sales tax, depreciation, production credits, and so forth. One wonders where else can one buy a generally appreciating asset and virtually have government guaranteed income.
This introduction will briefly outline two costs generally neglected: crops forgone crops and land ―in dollars and area. The demonstration site is assumed to have 17 windturbines on one-half a section (320 acres), and advertised as using six acres for the individual turbine site and access roads. The cost of the half section will not be considered here.
The dollar costs of windpower include the loss in revenues from the crops grown on the landsite. Assuming the area will produce corn at 175 bushels per acre with a bushel priced at $2.50. The annual loss in crop revenues is 6 x 175 x $2.50 or $2,625. In brief, using only the quantity of land used in the advertisements results in windpower costing the farmer approximately $2,600 every year.
The land used in siting and for access roads should also be considered a cost factor. In windprone farm areas in Minnesota, agricultural land is expensive. A conservative assumption is to price each acre at $1,500, thus the 6 acres cost $9,000.
It is reasonable to ask if the 6 acres properly represent the land required. The answer is a resounding “no”.
The statement is made that a 17-windturbine project uses only 6 acres of land. However, the entire demonstration project rests on 320 acres, indicating that the project requires roughly 20 acres per windturbine. Minnesota's farmland (virtually nationwide) is platted into mile square sections (640 acres) with county roads sometimes along one side. A farmer may also have a tractor access “road” (more like a pathway) to his fields.
Consider a windproject as a checkerboard grid of roads and access drives, “driveways” to each windturbine ―as the grid lines. Then to develop a windproject a grid of road and “driveways” is necessary. Assume a county road already lies along two sides and no road is needed at either end and that access roads are 30' and driveways 20' wide. Then separating the windproject’s one-half section (320 acres) into a grid indicates that three additional roads will divide access road the grid into four equal parts. In adding three additional roads the windturbines are now accessible from the five roads (2 sides + 3 inside the section, new). Each road can access 1/4th mile divided by two or 700'. This grid work of access roads appears to reflect actual practice and adequately separates each windturbine.
Now the land requirements become:
1. 30' x 2,640' x 3 ÷ 43,560' = ~5 1/2 acres.
2. 20' x 300' x 17 ÷ 43,560' = ~2 1/2 acres.
Or approximately eight acres in access roads. The revised figures for this modest demonstration system are another $12,000 in land and $3,500 in annual lost corn revenue.
The “bedrock” of the actual site must also be included. Each windturbine site rests on about the same land area as a suburban residential house lot, roughly one-half an acre.
3. 17 x 1/2 acre = 8½ acres.
8½ x $1,500 = $12,750 in additional land cost.
8½ x 175 x $2.50 = $3,718
The total of these generally undisclosed costs are $12,000 + $3,500 + $12,750 + $3,718, almost $32,000 in the first year and approximately $8,200 every subsequent year. In terms of electricity generation and not considering any other factor, in the first year these costs are recouped by generating and selling 1.07 MW at 3¢ per kWh.
In summary, for a windproject it is reasonable to estimate the total grid of roads and siting as at least 5% and likely 7% of the total land area covered by the development. The bottom line of windcommerce is the loss of vast acreages of natural areas and farmland.
This Testimony now turns to the pollution concerns frequently avoided in its promotions.
[Continue to Part 3 of 3.]
Enron Wind Company “Newsroom”, See at < http://www.wind.enron.com/newsroom/gov/index.html
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