Wind Farm Back-of-the-Envelope Economic Analysis
Guest post by Larry F. Brown, PhD
We visited a wind farm in southern Utah recently. I’ve always been curious about the costs, profitability, and physical size of these things as well as the footprint and environmental impact. I had 3 meetings with the man in charge of maintenance of the wind farm, a landowner who leases land accommodating 4 of the turbines, and a man who works in the industry in Colorado – and did some internet/newspaper research.
The maintenance superintendent told me they have 27 towers, that the installation cost was about $2 million each, and that each turbine is rated at 2.3 megawatts/hr but produces an average of 1.3 megawatts/hr (= 1,300 kW/hr). The blades are 187 ft long so the total height is nearly 400 feet high, and the tower at the base is about 13 ft in diameter encapsulated in huge quantity of concrete. The project pays about $1 million in taxes to the community each year and has a 20-year lease.
A nearly 400-foot-tall propeller-tower is a very imposing structure, especially in close proximity. They are huge. They make a whooshing noise and the turbine itself makes a little noise. The propellers appear to be moving very slowly but the tips of the blades normally travel at 180 to 200 mph. The blades can ice up, which requires deicing (with electricity) and can throw ice a significant distance – hence each tower has a flying ice danger zone clearly labeled with signage.
I pay about $.11/kWh for my electricity here in western Colorado. So, beginning the process of calculating the profitability of these things, each tower @ 1,300 kW/hr could produce an average of $143/hr = which would be $3,400/day = $1,253,000 of electricity/year. Sounds good – so far.
[Note – Germany boasts about their renewable energy effort but Germans pay about $.35/kWh on average – 3.3 times more than we do here in Grand Junction – and their rates can get as high as $.50/kWh.]
The $.11/kWhr I pay includes all the distribution costs, etc. The wind farm is not paid $.11/kWhr for their electricity. According to the ISO Wholesale Power Market Prices, the electric company sells electricity for about $.03/kWhr so instead of grossing $1.253 million, they might gross about $342,000 per year per turbine. Still sounds good – so far.
[The landowner indicated he gets a royalty for each tower that comes to an average of approximately $1,000/tower/month and gets paid separately for the power line easement across his land.]
“BUT WAIT!” (- as they say on late night TV when giving you the hard sell).
All of that income happens only if the machines produce 24/7/365. They don’t. They need to be down for periodic maintenance and for when the wind does not blow the right speed. I don’t know what percent of the time these particular turbines produce electricity, but studies show the wind only blows the right speed (the wind can blow both too soft and too hard) 18 to 19% of the time on average across the country. 18 to 19 % of $342,000/year = $65,000. MMmmm, all of a sudden, the economics don’t look very good. $65,000/year/tower is nowhere near enough to even pay the interest on a 5% loan to construct the tower $2 million tower.
It gets lots more complicated when you consider that the wind farms are being subsidized by the government with the Production Tax Credit (PTC). A tax credit should not be confused with a tax deduction. A deduction reduces the amount of income you pay taxes on. is paying taxes on. A credit is money back. And the PTC is a “Refundable Tax Credit” which means the company does not just get to pay fewer taxes but actually gets paid by the government even if it does not owe any taxes.
The PTC subsidy has been in effect now for 27 years. Congress has adjusted the PTC many times through the years but today the subsidy is about $.02/kWhr. So, the power company gets money back in the form of a subsidy for roughly 67% of what they produce – i.e., the company gets money back to the tune of $.02/kWhr after it sells the electricity for $.03/kWhr. If the company sells $3 million of electricity they get the $3 million plus a PTC subsidy of $2 million. That is a huge subsidy! In fact, I think it is the biggest subsidy ever given for anything.
T. Boone Pickens and Warren Buffett both have huge investments in these things and both have openly said that wind farms would not be economic without the PTC.
Note: Now, if I were the company and using the above example, I would report a gross income of $5 million. But, as a taxpayer, it’s more honest to say the wind farm has a gross income of $3 million. It would be dishonest to include a subsidy as profit. So, my back of the envelope calculations will go on from here without considering the subsidy as income.
Note: I would be surprised if these wind farms pay any income taxes. Potential taxable income can be written off against the investment for many years – probably the life of the project – without even dipping into the PTC.
Then, I don’t know for sure, but I think the turbine manufacturers also are subsidized by the government.
However, the economics get worse – much worse. The maintenance man said the towers cost about $2 million each – i.e., about $54 million for the 27 towers. Each tower probably does cost $2 million to install, but there are many other development costs associated such as land and right-of-way leases, power line construction, road construction, fencing, runoff control, revegetation, etc. Newspaper articles reported that this particular wind farm cost about $130 million, which is about $4.8 million per turbine. That means the income of $65,000/yr/turbine won’t even come close to paying the interest on a $4.8 million investment.
Note – According to the Wind Technologies Market Report, US wind turbine market prices in 2016 were just under $1,000 per kilowatt, or about $2.3 million for a 2.3-megawatt turbine (about $1,000 / kilowatt). These turbines installed cost about $4.8 million for a 2.3-megawatt turbine ($2,087 / kilowatt). An offshore turbine project recently approved off the coast of Virginia is projected to cost $25 million per megawatt ($25,000 per kilowatt). Wow.
In addition, the turbines are very technologically sophisticated and require constant maintenance. For example, the oils used in the turbines are very temperature sensitive and, when the turbines are not generating power, they must be heated – with electricity. Various articles point out that, although they produce electricity intermittently, they consume it continuously. Whether the wind is blowing in the desired range or not, they need power to keep the generator magnetized, to keep the blade and generator assembly facing the wind, to periodically spin that assembly to unwind the cables in the tower and to balance the pressure on the shaft, to heat the blades in icy conditions, to start the blades turning when the wind is not blowing fast enough to keep them going, to keep the blades pitched to spin at a regular rate, and to run the lights, internal control and communication systems.
One article I read indicated that in a worst case analysis, these large wind turbines might use as much electricity as they produce. I don’t assume the worst case and just lump electrical usage in with the many other maintenance costs.
I assume the maintenance cost for this wind farm (manpower on call 24 hours, office rental, trucks/fuel, electric consumption, security, snow removal, replacement parts, etc.) to be at least $750,000/year. Additional expenses of this particular wind farm (mentioned earlier) are the $1 million paid in taxes to the local government and the $1,000/tower/month) rent to the landowners. Together these 3 expenses add up to $2,074,000/year = about $77,000/turbine/year, so the income goes down from the $65,000 to a negative $12,000/turbine/year. For simplicities sake, let’s just call it $0/turbine/year. Said another way, this project, according to this back-of-the-envelope calculation, makes no money.
Note: I tried two times to get the company to review these calculations. They did not respond.
And, all those materials (and permits and land leases) have a life expectancy of 20 years. What happens after 20 years? There is a wind farm in northern Colorado that is no longer producing, purportedly because the maintenance cost is too high to rehabilitate the turbines. The wind farm sits abandoned. All mining companies are required to bond for reclamation of a site when mining is done. I do not think this is true for wind farms.
Another interesting thing is that the dynamics of the power market are shifting. It used to be that peak power prices occurred during the day. Now they occur at night when solar is not producing. Thus, renewables are now generating when the prices are lowest in the diurnal power price curve.
The bottom line back-of-the-envelope conclusion of this economic evaluation is that these things are not even close to being economic.
And, environmentally, they kill birds and bats – millions of them. I used to wonder how this could be happening. The propellers seem to be turning so slow. But the propeller blades are so long they only appear to be moving slowly. The tips of the blades are actually moving at 180 to 200 mph. No wonder a bird can’t see them coming. And, apparently bats don’t even have to be hit by the blade to die. The way bats are killed is that the passing blade creates a vacuum and the bat’s lungs explode even if he doesn’t come into contact with the blade. And, yes, I know that cars and windows and cats kill birds but cars and windows and cats don’t kill eagles and falcons and other protected birds and endangered species, and cars, windows, and cats don’t kill bats.
And, the stupidest, most injudicious, most reckless thing of all is that the Obama administration granted permits to wind farms to kill birds and bats, including endangered species. All other industries are fined big dollars for killing birds – not wind power. Double Standard? How crazy is this?
Then, the coup d’état – The craziest part of this whole thing is that we must keep 100% of the fossil fuel plants operating to generate electricity during the 80+ % of the time the wind is not blowing at the right speed. Wow. So, what do we save?
We continue to build thousands of these things at a cost to the taxpayer of $ billions/year. Why in the world are we doing this? I’m dumbfounded.
As indicated, each tower in this farm cost about $4.8 million. Assuming a 5% loan, each tower would have to produce $240 thousand per year to break even – i.e., even pay the interest on the loan. And, any normal investment would have to have some percent profit per year. I assume such an enterprise would have to earn at least another 5% per year as profit after taxes and interest to be a decent investment. That would mean that each tower would have to make $480,000 per year. My calculation indicates they don’t make any real money. My calculations might well be wrong. They might even be wrong by a factor of 2. But I doubt very much if my calculations are off by $480,000/turbine/year.
My conclusion: Companies are making money on these things, but the source of the profit is only (or at least mainly) coming from the Production Tax Credit – the subsidy paid by our government with our tax money for these projects. It’s obvious that T. Boone Pickens and Warren Buffett were right. Without the PTC (for the past 27 years) these things would not exist.
To make it worse, laws and regs have mandated electrical companies to produce x % of their electricity from renewable sources by such and such deadline. The renewables can’t make money so the electrical companies raise the overall price of electricity to cover these higher cost renewables. How silly is this? It’s very silly because the technology does not exist to store this electricity. Regardless of what Governor Brown or Governor Polis say or mandate, without storage, renewables will never replace other forms of electrical production.
The bottom line? A total waste of money – a total boondoggle – profitable to companies only because we, the taxpayer, are subsidizing them – and why are we subsidizing them? – because it’s green and it makes us feel good. And because a few “politicized scientists”, a whole bunch of liberal politicians, and the United Nations espouse that the burning of fossil fuels is causing global warming by adding CO2 to the atmosphere.
Well, we are indeed adding CO2 to the atmosphere by burning fossil fuels but CO2 is an insignificant greenhouse gas. CO2 has increased from 0.028% to 0.041% of the atmosphere (an increase of 0.013% percentage points) in the past 140 years. The theory says man’s 3% contribution to the 0.013% increase is causing global warming. How could only 3% of that minuscule 0.013% (i.e., a component comprising 0.00039% of the atmosphere) cause global warming? It can’t. Even more absurd, we are supposed to believe that taxing and selling carbon credits for that 0.00039% of the atmosphere will curtail the warming, slow the ocean level rise (as Obama promised), and save the planet?
It’s nonsensical. CO2 is not a pollutant. CO2 is a fundamental requirement for life and the added CO2 is actually greening the planet – vegetation worldwide is growing about 20% faster and using less water than it was because CO2 is a fertilizer for plant growth.
I think we should stop building these wind farms — tomorrow.
Larry F. Brown, PhD