Energy, what is it? Energy takes many forms, it is everywhere there is life, and omnipresent in the universe. Energy is the most essential, plentiful, and mysterious of all components of reality. Despite being the most complex of systems, there is no shortage of people who pretend some level of expertise on the subject. Especially regarding renewable energy; though technically, there is no such thing.
One of today’s most widely accepted forms of renewable energy is wind, and the machinery that transforms its kinetic energy into electrical energy and heat is the wind turbine. Generally speaking, wind turbines convert a diffuse form of active energy into a concentrated form of potential energy.
Another complex system with no shortage of people who pretend some level of expertise is economics. So listening to proponents of renewable energy talk about the economics of wind farms is doubly mystifying. Fortunately, there is no shortage of online resources to help the public sort through the basics of wind turbine mechanics and the business of investing in wind farms. One of them is the Danish Wind Industry Association (DWIA) at windpower.org.
The Fundamentals of Wind Energy Investment
Under DWIA’s online section titled Basic Economics of Investment it says “we look at the economics of an investment in wind energy from the point of view of society as a whole, as economists typically do. If you do not like economics, or if you know everything about it in advance, skip this page.”
Heck, why not just say, “if you think you know everything about economics then you’re more arrogant than we are.” Or it might mean, “if you understand anything about the operation of free markets, then there’s nothing for you to see here.”
According to the DWIA, there are three costs of wind power generation to consider –
- Economic depreciation of your investment
- Interest on the capital invested
- Operation and maintenance costs
They also discuss other factors that make the economics of a wind turbine complex. No single metric reveals very much, and that is normal in a complex system with dependent co-variables. For wind turbines they include: power production per square meter of rotor area, installation cost variations, turbine price per kilowatt hour generated, price per kilowatt capacity, and tariffs.
Depreciation – the Madness of the Methods
Regarding depreciation, the DWIA claims that “with rapid tax depreciation you get a higher return on your investment.” But according to them, that only works for bean counters. This is economics, so the economic depreciation method is recommended, but with this understanding: “economic depreciation is a bit trickier, you simply cannot calculate the economic depreciation of your investment unless you know the income from your investment.”
In free markets, the potential income from an investment is estimated from prices. The price mechanism gives investors an ongoing basis for evaluating the risks and rewards of an investment opportunity. But in the case of wind –
The patterns of sales, types of turbines, and types of contracts vary significantly and unsystematically from year to year. Germany has a very high electricity price for renewables. You will therefore find that in Germany it is profitable to equip wind turbines with very tall towers. The high electricity price also makes it profitable to locate wind turbines in low wind areas.
So of course the DWIA recommends the economic depreciation method. The governments subsidizing wind turbine investment are setting the prices for the electricity being sold by the wind turbine operators. The investment returns can then be used to justify more wind farm construction, reward the turbine contractors lobby, and create jobs (votes) out of moving air.
Of Investors, Landlords, and the Public Good
Regarding the interest on capital invested, “We do not look at financing or taxation. These items vary enormously from one country to the other, but they do not make any nation richer or poorer: They only serve to redistribute income.”
So it seems that capital financing doesn’t really matter. And this makes sense when the major investors are dependent on government subsidies. After all, its public money, for the public good, what could go wrong?
To cite another example of the omniscience of the DWIA, “Frequently people who understand the economics do not understand the technology and vise versa – and sometimes neither!” For proof the DWIA offers this –
It is a very common mistake to treat compensation to land owners where the turbines are placed as a cost of wind energy. If the compensation exceeds what you would normally pay to install a power line pylon, the excess is really an income transfer, which is quite a different matter to economists. It is not a cost to society as such, but it is a transfer of income (profits) from the wind turbine owner to the land owner. Such a profit transfer is called a land rent by economists. A rent payment does not transfer real resources from one use to another.
So, why not have the landowners pay the turbine operators instead? That would allow them to reduce the cost of electricity to consumers and have no impact on society as a whole. This can be confirmed by celebrated political economist Alexandria Ocasia-Cortez of Boston University’s class of 2011.
The Omnipotence of the Impotent
To these so-called economists, the voluntary exchange of money from one owner to another is meaningless – simple human economic transactions do not create wealth. Of course the omnipotent vision of the DWIA does create wealth: “what society gets in return for investment in wind energy is pollution-free electricity.”
On July 30th of this year, Inside Climate News reported that American Electric Power cancelled America’s largest wind farm project. It seems the $4.5 billion Wind Catcher development faced stiff headwinds –
With cheap natural gas and shifting tax policies casting doubts on its economic merits, its demise, while a big deal in the world of wind energy, probably doesn’t signal trouble for the wind industry at large, which is thriving.
Of course it’s thriving; their totalitarian “economic” dogma fueled by cheap money and phony bookkeeping makes it so.
Two things in our world that are indestructible are energy and gold. The sun has bestowed earthlings with massive stores of concentrated energy and a rare metal that is the perfect store of human value. But to the wind lobby economists and politicians, the heck with that. They have a much better plan; for proof, its genius was documented in A Petition by Frederic Bastiat.