THE ECONOMICS OF WIND FARMS
By Bob Confer
Billionaire Tom Golisano made yet another wise business decision last month when he and his partners decided to terminate their company, Empire State Wind Energy LLC. ESWE had planned to erect numerous windmills throughout New York in locales like Alfred, Sodus and Somerset. Days earlier another electrical generation firm, Noble Environmental, made the announcement that they were canceling their plans to station nearly 70 turbines in Allegany County.
Both companies had devised their projects at a time when wind generation made economic sense. Those days are over.
In 2005 the wholesale cost of electricity averaged $93.83 per megawatt-hour. In 2008 that value peaked at $95.31/MWh. But, in 2009, the bottom fell out of the market and the average cost collapsed by 49 percent to $48.63/MWh, the lowest price ever in the 10-year history of New York’s marketplace for electricity. This year has been a little better than last ($69.21 at the writing of this column) but it’s still a far cry from the 2005-2008 four-year average of $86.47.
Market prices will remain low for the long haul thanks to two factors, demand and production costs. Prior to the recession electrical demand was expected to grow by 1 percent per year. The weakened economy - in conjunction with a greater emphasis on energy conservation programs –instead lowered consumption by nearly 4 percent in 2009, opening the door for less costly energy sources to be put to use. Among those is natural gas which in 2007 accounted for 20 percent of New York’s power generation. It has since taken a larger piece of the pie as gas reserves are being unleashed on a regular basis (Marcellus Shale, etc.) accounting for lower gas prices and, therefore, cheaper electricity. From 2005 to 2008, natural gas was available for an average cost of $9 per million BTUs. Last year it fell to $4.87 and at press time was only $4.77.
ESWE and Noble both cited the faltering wholesale market as the sole reason for their decisions to kill their respective projects; it had nothing to do with the usual complaints of permitting issues or NIMBYs. It just isn’t feasible to produce and sell wind energy when, at the start, it costs just under $50/MWh. And, that’s only for the short-term: According to the US Department of Energy, if you take away the federal government’s Production Tax Credit (which offers a 2.2 cents per kilowatt-hour tax credit for the first 10 years of a project) the cost of wind-produced electricity escalates to $85/MWH. So, in either case, wind energy costs more than last year’s average price of electricity and the post-tax-credit cost far rivals even this year’s higher selling price.
One doesn’t have to be a businessman as savvy as Tom Golisano to see that investing in wind energy is a no-win situation, especially in the long-term. To any one of us it is obvious that it is virtually guaranteed that any new wind farm in New York will be losing money. It’s not like the economy – thus electrical demand - is going to grow in a hurry nor is it likely the newfound natural gas reserves will be tapped within the next few decades. The laws of supply and demand will ensure that fossil fuel energy remains inexpensive compared to wind.
So, if that’s the case, then why is the New York Power Authority so intent on putting 166 windmills in the waters of Lake Ontario or Lake Erie? Mind you, the ESWE and Noble projects – like all other US projects - were going to be built on land where the installation and transmission costs are so much more affordable than they would be 2.5 miles offshore as NYPA intends. How much more will that marine-based electricity cost over time versus standard wind projects which are already too costly? 30 percent more per MWh? 40 percent? The number is almost incalculable and unfathomable. According to published reports it will take $1 billion to build the wind farm. In comparison, the wind farm in Sheldon (about half the number of turbines) saw a bill that was one-fifth that amount.
Predictably, NYPA will cite environmentalism over economics, saying it’s worth it because it decreases our reliance on “dirty” fossil fuels. But, what’s so environmentally-friendly about setting dozens of 400-foot tall towers in which is – along with the Adirondacks - our state’s last vestige of natural wonder and beauty?
Altruism shouldn’t rule the day here. Reason must prevail. Wind energy – especially the maritime sort - is expensive, impractical and something that we’ll one day regret.
Both companies had devised their projects at a time when wind generation made economic sense. Those days are over.
In 2005 the wholesale cost of electricity averaged $93.83 per megawatt-hour. In 2008 that value peaked at $95.31/MWh. But, in 2009, the bottom fell out of the market and the average cost collapsed by 49 percent to $48.63/MWh, the lowest price ever in the 10-year history of New York’s marketplace for electricity. This year has been a little better than last ($69.21 at the writing of this column) but it’s still a far cry from the 2005-2008 four-year average of $86.47.
Market prices will remain low for the long haul thanks to two factors, demand and production costs. Prior to the recession electrical demand was expected to grow by 1 percent per year. The weakened economy - in conjunction with a greater emphasis on energy conservation programs –instead lowered consumption by nearly 4 percent in 2009, opening the door for less costly energy sources to be put to use. Among those is natural gas which in 2007 accounted for 20 percent of New York’s power generation. It has since taken a larger piece of the pie as gas reserves are being unleashed on a regular basis (Marcellus Shale, etc.) accounting for lower gas prices and, therefore, cheaper electricity. From 2005 to 2008, natural gas was available for an average cost of $9 per million BTUs. Last year it fell to $4.87 and at press time was only $4.77.
ESWE and Noble both cited the faltering wholesale market as the sole reason for their decisions to kill their respective projects; it had nothing to do with the usual complaints of permitting issues or NIMBYs. It just isn’t feasible to produce and sell wind energy when, at the start, it costs just under $50/MWh. And, that’s only for the short-term: According to the US Department of Energy, if you take away the federal government’s Production Tax Credit (which offers a 2.2 cents per kilowatt-hour tax credit for the first 10 years of a project) the cost of wind-produced electricity escalates to $85/MWH. So, in either case, wind energy costs more than last year’s average price of electricity and the post-tax-credit cost far rivals even this year’s higher selling price.
One doesn’t have to be a businessman as savvy as Tom Golisano to see that investing in wind energy is a no-win situation, especially in the long-term. To any one of us it is obvious that it is virtually guaranteed that any new wind farm in New York will be losing money. It’s not like the economy – thus electrical demand - is going to grow in a hurry nor is it likely the newfound natural gas reserves will be tapped within the next few decades. The laws of supply and demand will ensure that fossil fuel energy remains inexpensive compared to wind.
So, if that’s the case, then why is the New York Power Authority so intent on putting 166 windmills in the waters of Lake Ontario or Lake Erie? Mind you, the ESWE and Noble projects – like all other US projects - were going to be built on land where the installation and transmission costs are so much more affordable than they would be 2.5 miles offshore as NYPA intends. How much more will that marine-based electricity cost over time versus standard wind projects which are already too costly? 30 percent more per MWh? 40 percent? The number is almost incalculable and unfathomable. According to published reports it will take $1 billion to build the wind farm. In comparison, the wind farm in Sheldon (about half the number of turbines) saw a bill that was one-fifth that amount.
Predictably, NYPA will cite environmentalism over economics, saying it’s worth it because it decreases our reliance on “dirty” fossil fuels. But, what’s so environmentally-friendly about setting dozens of 400-foot tall towers in which is – along with the Adirondacks - our state’s last vestige of natural wonder and beauty?
Altruism shouldn’t rule the day here. Reason must prevail. Wind energy – especially the maritime sort - is expensive, impractical and something that we’ll one day regret.
No comments:
Post a Comment