Guest post by Larry F. Brown, PhD
Various commenters pointed out to me that I made an error in my calculations.
First, the maintenance man told me the turbines were designed to produce 2.3 MW but only produce an average of 1.3 MW. I then reduced the 1.3 by about 80% because I found that the average wind machine nationwide only produces power about 18-19% of the time. Using the reduction from 2.3 to 1.3 and then additionally reducing that by 80+% is apparently wrong.
Next, I have been informed that a capacity factor of 1.3/2.3 = 57% (told to me by the maintenance man) is probably way high. Multiple comments quoted other capacity factors, all of which were lower.
Some commenters were unhappy with the units I used – i.e., MW/hr vs the MWhr . I choose to ignore these comments because they are nit-picky. I’m wrong – my mistake – they are correct – but my meaning and intent are perfectly clear to all readers. Let’s move on for goodness sake.
A few commenters wondered which facility I was evaluating – it is immediately outside Monticello, UT.
A few commenters objected to calling these things farms – mmmmm —— they are called wind farms.
I have redone the calculations and using the following adjustments:
· Based on the comments, and assuming the maintenance man was being overly generous in his estimate, I have reduced the capacity factor from 57% to 40%, even though most who commented on this indicated it should probably be even lower.
· I eliminated the 80+% reduction for wind.
· And I raised the annual maintenance costs to $1 million from $750,000. Three-quarters of a million sounds very low. $1 million is a little more realistic.
Again, 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, using a capacity factor of 40%, will produce at 920 kW which, at $.11/kW, provides an income of about $101/hr = $2,430/day = $887,000 of electricity/year. Sounds good – so far.
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, this site sells electricity for about $.03/kWhr. So instead of grossing $887,000, they might gross about $242,000 per year per turbine.
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 taxes you pay. A credit is money back. And the PTC is a “Refundable Tax Credit” which means the company 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.
However, the economics get worse – much worse. The maintenance man said the towers cost about $2 million each to install. Each tower probably did cost $2 million to install, but there are many other development costs associated with a project such as land and right-of-way leases, power line construction, road construction, fencing, runoff control, revegetation, bonding for dismantle, etc. Newspaper articles reported that this particular wind farm cost about $130 million, which, for 27 turbines, is about $4.8 million per turbine. The income of $242,000/yr/turbine would about pay the interest on a 5% loan to construct the towers. But, there is more.
There are other peripheral costs associated with such a project. 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 $1 million/year.
Additional expenses of this particular wind farm are the $1 million paid in taxes to the local government and the $1,000/tower/month rent to the landowners. These three expenses total $2,324,000/year = about $86,000/turbine/year, so the income goes down from $242,000 to $156,000/turbine/year – which is probably not enough to pay the interest on a loan and certainly not enough to show a net profit.
Even with my error in the original calculation, my conclusion remains: 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.
I think we should stop building these wind farms — yesterday.
Larry F. Brown, PhD