Big Money from Big Wind
By John McClaughry, President, Ethan Allen Institute. 
More at www.ethanallen.org

Suppose you wanted to make a bundle in the electric energy business in the little state of Vermont. How would you go about it? The old-fashioned way would be to generate electricity at a lower cost than your competitors. But forget that – too demanding. Here’s another way: get the federal and state governments to rig the deal in your favor.

A good time to begin would be 1980, just after Congress, egged on by liberals and enviros, enacted a bill called PURPA. Under PURPA, states were required to coerce their electric utilities into buying the electricity from small hydro plants, at prices based on the price of oil reaching $100 a barrel by 2000. With your hydro plant up and running, the utilities would have to pay you two or three times what turned out to be the spot market price. 

With that money machine working for you, it would be time to look for greater rewards. That would lead you to Big Wind. 

The technology is there. The current industry standard wind turbine has a rated capacity of 1.5 Megawatts, with blade tips reaching 330 feet above the base. (Even larger units are coming soon.)  The windy ridgelines are there. And most importantly, the subsidies are there – lots of them.

First, a wind project owner can write off his capital costs from federal and Vermont taxes over five years. This rapid depreciation feature means that he can get back over half of the cost of the capital investment in two years. Not bad. 

Then the federal government gives you a really nice bonus, a 1.9 cent credit for each kilowatt-hour produced. Hmmm, very good.

To top it off, the power you produce qualifies as “green power” and can be sold at a nice premium to utilities required to buy “renewable energy credits” by state-imposed  “renewable portfolio standards” or state or regional “cap and trade” schemes.

To ease your path toward big profits, a friendly Governor like Howard Dean can get a $50,000 federal grant to underwrite an advocacy organization to peddle the merits of renewable energy, of which your variety will be by far the major beneficiary.

Through your generous support, you can get enviro groups like VPIRG to clamor for Big Wind. You can hire VPIRG’s executive director to be your chief political operative. You can even write a newspaper commentary explaining how welcoming industrial wind farms into Vermont is equivalent to earlier Vermonters’ demand for the abolition of slavery.

And there’s our wonderfully liberal legislature. There your friends can push through a “renewable portfolio standards” bill to require the utilities to buy your wind power regardless of its cost to the ratepayers (Act 61 of 2005). They can persuade the solons to extort $15 million from the state’s one dependable, efficient, but unpopular (with enviros) nuclear plant to create a “Clean Energy Development Fund” to subsidize among other things wind energy projects (Act 74 of 2005). They can also make sure that the expected revenues from the Regional Greenhouse Gas Initiative are used to subsidize renewable energy causes like Big Wind, instead of just reducing everybody’s electric bills (Act 123 of 2006).

Even with all these successes, there are still some annoying obstacles. Lots of rural Vermonters don’t want to look at gigantic wind towers marching along their ridgelines – especially when tax incentives are the main reason for their being there. A PSB hearing officer recommends against the East Haven project because it would somehow detract from the eco-values embodied in the nearby Champion Lands. The Agency of Natural Resources objects to the effects of wind turbines on birds and bats.

But with the generous tax benefits, the utilities forced to buy your power at above market rates, the profitable market for selling “green power” credits to out of state utilities, and the prospect of handouts from the Clean Energy Development Fund and the RGGI program, winning the Big Wind game may still worth the political investment.

There is however one threatening idea to worry about. That is the idea of the state levying a 1.9 cents per kwhr tax on industrial wind energy production. That would neutralize the federal production tax credit incentive and make wind projects compete in the energy marketplace. That would bring Big Wind down overnight. But maybe no one will think of it. 

John McClaughry is President of the Ethan Allen Institute