At first glance, the energy proposals of Texas oilman T. Boone Pickens for wind power and increased gas usage sound good. "We can't drill our way out of this crises"; I happen to disagree with this statement. We still need to drill to make ourselves "independent from foreign oil." But the real issue is what is behind the clamor to expand wind power in lieu of increasing oil drilling.
To understand this you have to read between the lines. Not only does Pickens’ firm, BP capital, have significant investments in natural gas, but last June he announced plans to build the world’s largest wind farm in west Texas, capable of producing 4,000 megawatts of electricity.
The federal government subsidizes wind farm operators with a tax credit worth 1.9 cents per kilowatt hour — potentially making for a tidy annual taxpayer gift to Pickens based on his anticipated capacity. But Pickens and wind power investors have a problem: since congress didn’t renew the wind subsidy as part of the 2007 energy bill, it will expire at the end of this year unless reauthorized. Government subsidies are the most important incentive for wind power usage and expansion; without them, wind can’t compete against fossil fuel-generated power.
As pointed out by the Atlanta Journal-Constitution on July 9, "In 1999, 2001 and 2003, when Congress temporarily killed the credits, the number of new turbines dropped dramatically."
President Bush and Senator McCain have both called for renewed offshore oil and gas drilling. With gasoline prices around $4 per gallon, something needs to be done. However why is there opposition to offshore wind development? The Wall Street Journal notes that although there is no formal moratorium against offshore wind power, environmentalist and NIMBY opposition has stalled every sea-based wind project proposed in the U.S. thus far. Europe, on the other hand, has over 20 offshore wind farms in operation. Even the esteemed environmentalist, Senator Ted Kennedy, objected to a wind farm in his backyard.
Pickens is waging a $58 million PR campaign to promote his plan. If it works, his investment in propaganda he stands to make more than a tidy profit with tax payer money. The opinions of many that this rhetoric is motivated by profit rather idealistic notions of "energy independence".
Don't worry about the cost, Pickens says, "It will be accomplished solely through private investment with no new consumer or corporate taxes or government regulation" but this is not true.
Government subsidies of almost any sort are problems for me because I am a believer in the market. A good product or service can stand on its own; if it can't survive on its own merits then it shouldn’t succeed. Subsidies by their nature give unfair advantage to that which the market itself won’t reward. The government has been subsidizing ethanol production for a long time and all it has done is damage food production and raise prices on all sorts of things. All we have seen is higher food prices, less land use for food crop production, and a dirtier than expected emissions problem with the refined product (to name a just a few issues).
When subsidies are taken away the industry collapses. Just one example is the support for solar energy in Japan. The solar power industry in Japan effectively collapsed within two years of the government stopping subsidies because the government subsidies were artificially keeping solar power competitive. Without the subsidies, people could not afford the buy or install solar panels and the industry collapsed.
Granting price supports, i.e. subsidies, have been crucial to the development of wind power everywhere. European countries like Denmark, Germany, and Spain became world leaders after they passed long-term, generous subsidies for wind. Major industry players like Vestas, the Danish turbine maker, have long called for the U.S. to support the industry over the long haul, not year-to-year and the recent effort by Pickens carries on these demands for tax payer money to reap huge profits. However despite this hemorrhaging of government money, according to the IPCC, after 25 years of world-wide subsidies, wind and solar have managed to deliver only 1/2 of 1% of the world’s energy. At this rate, it will take 5,000 years for wind and solar to replace coal.
To put that in context, on average in the United States in 2007 the residential retail price of electricity was about 10.65 cents ($0.65USD) per kWh. A typical 2 MW turbine running at 30% capacity for a year will produce 2000 kWh; at 24 hours and 365 days, this equals 5.265 million kWh per year. At retail that's a half million dollars. The revenue from the subsidy is bigger than the revenue from selling the electricity. That seems pretty ridiculous.
Along with T. Boone Pickens and the wind power industry, the American Wind Energy Association (AWEA), wants a continuation of the wind Production Tax Credit of 2 cents per kWh. The 2005 energy bill provided exactly the kind of multiyear support the wind industry says it needs. The production tax credit, or PTC, now pays utilities about 2 cents for every kilowatt of wind power they produce over the first 10 years of a project's operation. Congress's Joint Committee on Taxation estimated the cost to taxpayers is billions a year. Incidentally, those 5.244 GW of wind towers built in 2007 will probably run at about 30% of capacity so we are really talking about the equivalent of a 1.57 GW.
In their rquest for a 5 year extention of the U.S. Production Tax Credit, the American Wind Energy Association claims at least in New York State wind energy displaces mostly natural gas. However a recent New York study found that if wind energy supplied 10% (3,300 MW) of the state’s peak electricity demand, 65% of the energy it displaced would come from natural gas, 15% from coal, 10% from oil, and 10% from electricity imports. Do you still think wind power will reduce our dependence on foreign oil?
Let’s take a look at the real profit behind wind power.
Wind power's primary federal-based incentive is the production tax credit (PTC) -- that is, a credit for each kilowatt-hour that a wind energy facility produces for the first 10 years of the facility's life. Wind also receives funding for research and development to help further advance the technology. Wind energy's FY 2006 R&D funding: $38.3 million. although one of the federal incentive mechanism for wind power is the PTC, government subsidies are also a major incentive. Just in 2006 alone, government subsidies to wind farms was $500 million.
T. Boone did not just try to spread a false word about use of wind power and gas to solve our energy dependence problems, almost every claim to justify wind power subsidies he is seeking for his wind energy investments is wrong.
It is clear by now that oil imports are not the cause of high gasoline prices. Actually, oil imports keep gasoline prices down. If we were to limit our oil to that produced in the U.S. at this time, it would make domestic energy producers (like Mr. Pickens) far richer and would cost consumers far more, and the GDP would be reduced as well. Until we overcome the Democrat block on oil drilling to increase domestic supplies, we have no choice but to import oil. As for the price of oil and gasoline, the rule of supply and demand has not been repealed by Democrats so we still have the ability to control our energy destiny by drilling and increasing oil production.
If wind energy were a sensible economic investment, it would not need federal and state subsidies already in place or the additional subsidies inherently needed in the wind power expansion directly and inferentially sought after by Pickens. Similarly, if compressed natural gas (CNG) vehicles are really an economically viable alternative to conventional gasoline-powered vehicles, they would have succeeded in the market place and no government subsidy would be necessary.
We can wish T. Boone Pickens well in his wind energy business, but there is no reason for taxpayers, ratepayers or consumers to pay him for his investments.