WNY's New Wind Farms - the Last of Their Kind for Some Time

Introduction
If you've driven by the relics of Bethlehem Steel recently, you will see that 6 more Clipper 2.5 MW wind turbines are now installed. This 15 MW addition to the existing 25 MW array will soon be generating electricity. The incentives used for this project and to justify the investment of roughly $30 million will be extinct at the end of 2012 if nothing is done to change the wishes of the ruling Republicans of the U.S. House of Representatives; for the owner of the wind farm, it was a now or never deal. So that will mean 14 of these pollution free electricity generators, ones that are rarely ever heard but often seen. If they perform like advertised and do not experience "economic curtailment" (where wind turbines are shut off by grid operators because the added outputs of these units depress the spot market price for electricity TOO MUCH), an average of about 5 MW of natural gas sourced electricity can be avoided, which is a GOOD thing.

In other nice news, Invenergy recently announced they would soon start construction of their Stony Creek wind farm in Wyoming County. This will be located bear Rte 20A between Varysburg and Warsaw in the town of Orangeville. From a location standpoint, this is situated next to a 230,000 volt line (rated at over 300 MW of capacity) on a hill/ridgetop in diary country. The project will consist of 59 x GE xle turbines, rated at either 1.5 or 1.6 MW (but with the 82.5 meter rotor diameter in either case), total capacity being 88.5 or 94.4 MW. Again, with a 30% net output, this should average about 28 MW on a delivered basis, which also means that an average of 28 MW of natural gas sourced electricity will be replaced by the output of this project, and this is also a GOOD thing....

Discussion
Both of these projects are examples of economic development done by big companies which are also good for the American economy. First Wind (see http://www.firstwind.com/projects) has 11 operating projects rated at 735 MW and two under construction rated at 141 MW - they have concentrated on the US Northeast and in Hawaii. In this case, they are using Clipper Liberty turbines (96 meter rotors, 2.5 MW capacity, 80 meter towers); Clipper is now owned by United Technologies (UT), a major industrial/aerospace/defense contractor. The Clipper units are made in Iowa, towers (often) in Tennessee and the blades used to be made in Brazil, but after some notoriously bad quality blades, perhaps these are domestically made nowadays...

Invenergy (see http://www.invenergyllc.com/default.htm and http://www.thewindpower.net/developer_en_124_invenergy.php) now has 23 operating projects in the U.S. totaling 2025 MW of capacity. Their favorite machine of choice is the GE 1.5 MW (they have invested over $4 billion installing 1350 of these), and because they buy in bulk, they are believed to get discounts. Invenergy also owns the 112.5 MW Sheldon wind farm, which is about 10 miles east of the Orangeville location (Rte 20A might have to get renamed as "Wind Turbine Way"). General Electric (GE) is also a major defense/aerospace/finance/technology/manufacturing company, sort of like UT, only bigger. The GE turbine nacelles are made in California, the gearboxes in Erie, Pa and the blades in Pennsacola, Fla; towers for the WNY GE turbines tend to be made by DMI in Fort Erie using steel made in Hamilton. However, there are about 8,000 parts in a turbine, and lots of USA/Canada located companies supply parts and make a living/get income/pay employees based on sales of products and services to GE and Clipper.

In fact, the First Wind and Invenergy combined portfolio is almost 2760 MW, which is an investment of close to $5.5 billion. And since the number of job-years per billion dollars invested in the wind biz is about 16,000 direct ones, this supplied about 88,000 job-years of employment at manufacturing/construction wages. If the "job multiplier factor" for the wind biz is similar to the auto industry (about 4.5), this combined investment facilitated close to 400,000 job-years of employment. And since most of this has been done in the last 6 years, one can safely say that these two companies have helped create about 15,000 direct jobs and 51,000 indirect ones. Providing they keep up this pace of wind farm installations, that's a decent bit of job creating, a lot of which is centered around the Great Lakes metal-working industries.

Of course, this comes at a cost because of the bizarre way that we fund the renewable energy business in this country. In order to allow wind farm owners to make a profit while selling electricity at the rate more or less set by natural gas and coal sourced electricity providers (around 4 c/kw-hr), subsidies to the owners of the renewable energy systems are needed. In fact, no one can install ANY kind of new electricity production facilities and make a profit at a sale price of 4 c/kw-hr or less - notably new coal and nuke facilities (especially new nukes, which need over 20 c/kw-hr and are more expensive than offshore wind farms, even with their subsidies!). Besides, on a kw-hr basis, the subsidies to wind are pretty small compared to those given to coal (air pollution allowances/cost avoidance worth about $200 billion/yr - @ $85/ton CO2 for CO2 pollution and $62/ton of coal burned for particulates and SO2/NOx/elemental poisons like mercury and radon - plus the $12 billion/yr in subsidies given to coal mine owners) and nukes (subsidized money, the Price-Anderson Act, and no need to find a way to properly dispose of the spent fuel rods, for starts, as well as the equivalent of the PTC). But, instead of more logical payment systems such as those used in either Quebec or Ontario, we in this country subsidize the price of electricity, keeping it lower than it should be or would be if no subsidies were employed and if all external costs (like air pollution) were internalized.

But, let's consider the 2760 MW of installed capacity and what we are paying to subsidize this wind sourced electricity, as well as a particular benefit that rarely seems to get mentioned. At a 30% average net output, these wind farms (including the 135 MW Montana Judith Gap wind that has an average output near 42%, and which is one of the most productive ones in North America) would make about 828 MW on average, or 7.26 million MW-hr/yr. BTW, this also is about the output of a large nuke in North America (such as NY's FitzPatrick nuke near Oswego, of 838 MW capacity and 6.92 million MW-hr/yr in 2010).

The prime subsidy is the one rarely mentioned at all, which is the MACRS plus the interest paid on loans combined deduction from taxable income. The MACRS portion is mostly used up in 3 years/totally in 6 years. Over the course of 6 years, the "paper losses" estimate would be $5.5 billion (MACRS) and about $1.5 billion for the interest on $3.3 billion in loans for 6 years, totaling about $7 billion in deductions, or about $2.8 billion in avoided combined federal (35% marginal tax rate) and state (average of 5% income tax rate) taxes on regular or passive income. Next comes the PTC or its various equivalents, the ITC or the Section 1603 grants, which can be approximated by the PTC tax credit that only applies to passive income. The PTC rate is now$21/MW-hr for 10 years, so 828 MW * 8766 hr/yr *$21/MW-hr = $152 million/yr. Over 10 years, this would add up to about $1.5 billion; so far, most of this has yet to be recovered. For the "tax investors" who benefit from this via the partnerships that are made between the developers and rich people/companies/"hedgies" with massive passive income and thus a potential big passive tax bill (as long as they haul in that flow of passive cash), it's a bit of a risk; if their "booty haul" rate slows down or ceases due to another Great Recession or worse, they get no tax credit. After all, if you have no income, you still can't take any tax credits. It must be special to be able to anticipate a full decade of massive taxable income and thus book those tax credits, otherwise known as avoided taxes, as income on another set of books. But, that's a digression, and besides, who made up these crazy rules, anyway? And besides, what is crazier, having to depend on this dubious slight of hand, or thinking that we could fund a few trillion dollars worth of renewable energy investment in the US in the next decade or two in this manner?

So, the total in avoided taxes for the owners or "psuedo-owners" of this project would be $2.8 billion (MACRS/interest) and $1.5 billion (PTC), or $4.3 billion over a 10 year period. Not bad for an investment of $5.5 billion to make an average of (estimated) 828 MW. On the other hand, consider this example - Invenergy has a long term (20 year) Power Purchase Agreement (PPA) with Northwestern Energy to sell the Judith Gap energy at $31.25/MW-hr, or 3.125 c/kw-hr (http://dnrc.mt.gov/Trust/Wind/JudithGap.asp), which is really really CHEAP. That cheap electricity comes at a price, as the 135 MW of turbines cost close to $270 million in today's dollars to install. Without the subsidies, the owners would need to charge near $70/MW-hr to $80/MW-hr, at least until the project gets paid off. And other projects with less robust wind resources would need even higher prices....

At the end of 2011, the US wind turbine capacity will be around 52 GW, and the net output will be around 15.6 GW (44 GW at the end of 2010 = 13.2 GW net output). Almost all of the wind derived electricity displaces natural gas sourced electricity (but in some cases this might be fuel oil, coal or even nukes). And while some of this might be the less efficient single cycle gas turbines, a lot of combined cycle ones with a thermal efficiency averaging 45% are being displaced. This can be used to estimate how much natural gas usage is avoided, and this works out to a rate of 878 billion cubic feet/yr (bcf) of natural gas. Last year, 7,377 bcf/yr was used to make electricity, and dramatic rise from 2009 (well, for a commodity), at 6.9%/yr. Overall gas usage increased by about 5.4%, and yet prices still remained very low for gas. However, the increase in demand that would have come from not using wind turbines and actually using more natural gas would have increased prices for methane significantly. That 878 bcf would have increased demand by an additional 3.6%, so that the total increase in gas demand would have been near 9%. To get an idea on how sensitive to supply/demand imbalances natural gas prices can be, sales in 2008 were about $230 billion, but in 2009, when 3% less gas was sold, sales were only $92 billion. Pretty touchy, eh? For 2011, gas usage will be displaced at a rate of over 1 trillion cubic feet per year (tcfy), or about 4% of all natural gas used and 13% of the methane used to make electricity. Like it or not, wind turbines are now an important impediment to rising natural gas prices..... and the more wind turbines that get installed, the bigger the impediment to natural gas price increases as well as the use of fracking to extract natural gas from shale gas sources.

The increase in prices would mostly affect those who use gas for heat (about 2/3 of methane consumed each year is used just to make heat). Merely raising prices by $1/MBtu would pull $16 billion/yr out of residential, commercial and industrial customers, but this "demand shock" (where wind turbine electricity is replaced by gas sourced electricity) could have easily spiked the nation's methane bill by $50 to $100 billion/yr. All that becomes money which cannot be spent on other things, and such a price increase would act like a giant, ultra-regressive sales tax, where the proceeds don not go to pay for governmental services but instead get siphoned largely to the "upper 1%" of our income brackets. Just what we need these days..... NOT! The resulting depressed economic activity would affect our local, state and federal government in two ways - increased costs (heating schools and buildings, for example) and decreased tax revenues. Also just NOT what the doctor ordered, economically speaking, these days. Of course, gas price rises would also raise electricity prices, especially in states like NY where we have "competitive" electricity generation markets (quotes are highly deserved). Since coal and nuke generation costs remain unaffected by natural gas price increases, gas price rises translate into the equivalent of "rentier" profits to owners of coal and nuke sourced electricity generators in such states. Since most of such profits go to the upper echelons of the American income distribution and that does not seem to be very beneficial to our economy as a whole, it seems that actions encouraging these "rentier" profits associated with increasing usage of natural gas are unwise and them some.

Installations of real wealth producing investments are far too rare these days. But, if we are to fix both our economy and our climate, what is needed is installations like these two companies have undertaken, but on a massive scale, and not just exclusively by companies who need massive tax avoidance in order to lower their electricity generation prices to rates that are historically depressed levels. Investment by companies, cooperatives, individuals and governments big and small all have the same effect at job creation, and especially manufacturing job creation/retention. We need at least 400 GW of non-polluting electricity to replace pollution sourced electricity (gas, coal, nukes, some oil), which is roughly 400 times the combined First Energy/Invenergy investments to date, and it would be good if this was done in less than a decade. Then we need about 300 GW additional (delivered basis) just to replace all the natural gas used for heating (such as by replacement with heat pumps) as well as a lot of the gasoline now used in cars/diesel in trucks and trains - the diesel trucks mostly need to get replaced with electric freight rains. And it's rather obvious that if 0.828 GW delivered costs $4.3 billion in avoided taxes, this system is not going to deal with 400 GW or 700 GW delivered, even if this is on a 6 year average/10 year total basis... In case the math eludes you, that's a lot of tax avoidance by the super-rich - approximately $3.6 trillion in avoided taxes to replace all our polluting electricity sources and most of our pollution based heating. And guess who would have to make up for that budgetary discrepancy....

The Wrap-up
As for WNY, these two new wind farms can deliver lower spot market electricity prices via bumping off gas used to make electricity, which in turn will put further downward pressure on coal sourced electricity pricing. Last year we only used 46.1 MW of gas sourced electricity (see table 3, pg 6 of this report: http://www.4shared.com/document/IKgU61cv/Lee050411e.html), and adding in another 33 MW (5 + 28) means that we only have 13 MW to go until we are freed from the scourge of using that fossil fuel to make electricity. Of course, then we have to move on to the next fossil fuel scourge of our electricity system, but one scourge at a time might be the way to go at it.

Also of note, the permit and documentation for the Orangeville project can be found here: http://www.invenergyllc.com/stonycreek/index.html. One interesting conflict between the developer and those opposing it (and by default, those almost invariably in favor of more pollution) concerns the sound levels made by these turbines. The Invenergy report can be found here: http://www.invenergyllc.com/stonycreek/pdf/1/03_DEIS/DEIS_Appendices/D_Noise_Study_2010_02_11.pdf while the opposing view can be found at the end of the public comments (warning 17 MB download!): http://www.invenergyllc.com/stonycreek/pdf/2/E.2.h%20-%20Written%20Public%20Comments%20306-342.pdf. It is like night and day difference, with opponents claiming that houses located next to busy roads like Rte 20 experience amazingly quite lives. Road noise and "wind noise" - wind blowing through trees - add up to more than the wind turbines are likely to produce. The 50 dBA level is pretty low, and to be able to argue that background sound levels next to a busy road are below average hearing levels for most people (40 to 45 dBA) is a bit of a stretch. But, sound is a great arguing point because after all the measurements come in, the question of "what do they mean?" becomes the main refrain.

Finally, here is the latest of First Wind's wind farms to get commissioned - a 40 MW, 16 Clipper array in Vermont - http://www.firstwind.com/projects/sheffield-wind. And on a ridge line no less, where it will actually be seen! Oh well, I guess that beats using an old geezer nuke (Vermont Yankee) with its nasty habit of leaking radioactive Tritium into the neighborhood. BTW, Vermont Yankee is one of those 500 MW GE made units that is identical to Fukushima Unit #1.

DB