December 22, 2004

Wind is an attractive investment/con

People often ask, upon being told about what lousy sources of energy wind farms are and how much damage they do, why do people invest in them? The answer, of course, is the very non-invisible hand of government manipulation of the market.

A December 15 presentation by Ed Feo of Milbank, Tweed, Hadley & McCloy for an American Bar Association seminar pointed out the financial benefits in the U.S.: accelerated depreciation, production tax credits, power purchase agreement (captive buyer), REC sale agreement (secondary sale of "green credit"), and subsidy payments. These benefits, paid for by taxpayers and ratepayers, amount to two-thirds of the value of a wind project. A 300-KB PDF of the PowerPoint slides is available here.

Milbank, Tweed, Hadley & McCloy sponsored a "Financing Wind Power Projects" conference last year, in which Keith Martin of Chadbourne & Parke claimed, "Federal and state tax subsidies cover as much as 75% of the capital cost of a wind project." A 535-KB PDF of the conference schedule is available here.

Apparently, two-thirds or even three-quarters isn't enough to keep the juggernaut rolling, because the Renewable Energy Business Alliance has been formed this month to lobby for even more tax breaks.

In Germany, already crowded by one-third of the world's wind power, a recent law requires utility companies to buy all wind power produced and to pay 10 times what electricity from coal, nuclear, and natural gas plants costs. The flood of investment is not surprising.

Please note that there is nothing inherently wrong with such subsidies (and also note that there is no such thing as a free market). But who benefits? As has been made clear in Germany and Denmark, industrial wind power benefits only the investors. It also provides green window dressing for politicians and still-polluting energy companies. The subsidies do not serve to advance a greater good at all. They move huge amounts of cash from taxpayers and ratepayers to the pockets of a very few. That's why those that have the means eagerly invest.