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Energy Market & Policy Analysis, Inc.
P.O. Box 3875
Reston, Virginia 20195-1875
(703) 709-2213; Fax 709-2214: e-mail EMPAInc@aol.com September 13, 2000

Recently Announced Texas "Wind Farm" Projects Demonstrate that the Potential Contribution of
Wind Energy is Limited

Summary and Contents 1

Data on the Two Recently Announced Texas "Wind Farms" 1
1. TXU and FPL Energy project 1
2. Reliant Energy project 2

The huge Texas projects will provide very little electricity, particularly when compared to
Total Texasí electric generation and to the output from "conventional" generating plants 2
1. Comparison with total Texas electricity production 2
2. Comparison with existing Texas electric generating plants 3

The planned "wind farms" would not be built if a large share of the cost were not being
shifted to (and hidden in bills paid by) taxpayers and electric customers as a result of
federal tax shelters and the Texas "Renewable Portfolio Standard." 4
1. Accelerated depreciation 4
2. Production tax credit 4
3. Texas "Renewable Portfolio Standard" (RPS) 4
4. Higher prices for "green" electricity 5
5. Other subsidies 5
6. Public relations 5

Claims about the potential contribution of wind energy are misleading in other respects 6
1. Claims of homes that would be served by wind energy are false or misleading 6
2. Advocates overstate the potential for wind energy in the US by ignoring limitations
on the sites that would be available for building windmills 6

Despite limited potential, millions in tax and consumersí dollars are being used to promote
wind energy 7

Conclusions 8

Energy Market & Policy Analysis, Inc.
P.O. Box 3875
Reston, Virginia 20195-1875
(703) 709-2213; Fax 709-2214: e-mail EMPAInc@aol.com
Glenn R. Schleede
September 13, 2000

Recently Announced Texas "Wind Farm" Projects Demonstrate
that the Potential Contribution of Wind Energy is Limited

Two huge "wind farms" recently announced in Texas demonstrate clearly that wind energy is a niche technology that will do little to offset the need for the people of the US to depend on coal, natural gas, oil, nuclear energy and hydropower for their electricity for years to come.

This analysis provides information to help correct exaggerated expectations about the potential for wind energy that has been created by the US DOE and renewable energy advocacy groups.

Summary and Contents:
* Data on the two recently announced Texas "wind farms."
* The huge Texas projects will provide very little electricity, particularly when compared to total Texasí electric generation and to the output from "conventional" generating plants.
* Planned, high cost "wind farms" would not be built if a large share of the cost were not being shifted to (and hidden in bills paid by) taxpayers and electric customers via generous federal tax shelters and the Texas "Renewable Portfolio Standard."
* Finding acceptable sites for the huge machines will be difficult in many parts of the US due to wind conditions, availability of transmission lines, distance from electric load, scenic and other environmental values and potential impact on property values.
* Claims made by DOE and other renewable energy advocates are misleading in other respects.
* Despite limited potential, millions in tax and consumer dollars are being used by federal and state government officials to promote wind energy.

Data on the Two Recently Announced Texas "Wind Farms"

1. On July 19, 2000, TXU Electric and FPL Energy announced plans for a major "wind farm," to be built in West Texas, south of Odessa, that would:
* Consist of 242 wind turbines that will stand 166-feet tall and have fiberglass blades 76-feet long (for a total height of 232 feet).
* Have total rated capacity of 160 megawatts.
* Provide approximately 500,000,000 kilowatt-hours (kWh) of electricity per year to "power about 29,000 homes for Texas customers."
Based on these numbers, the companies apparently are assuming that:
* Each turbine will have a rated capacity of about 660 kilowatts.
* The average annual capacity factor for windmills in the project would be about 35.7%. (Note that few windmills operating in the US have achieved such high capacity factors in normal operation.")

2. On August 24, 2000, Reliant Energy announced its plans for a wind power project, called the King Mountain Wind Ranch, that will be located on the 3,141 foot King Mountain, near McCamey in West Texas, about 70 miles south of Odesssa. The project is to be developed, built and operated by Cielo Wind Power, LLC and Renewable Energy Systems (USA) Inc on a turnkey basis. According to Reliant Energyís press release:
* The project will consist of about 160 windmills.
* Each turbine will have a rated capacity of 1.3 megawatts (MW).

Based on this information, the total project capacity would be about 208 megawatts (MW). Reliant has not issued details on the physical size of the windmills, the expected annual electricity output (kWh) from the "wind farm," or the expected capacity factors. However, simple arithmetic permits calculating potential annual kWh output for the project based on a range of potential capacity factors; i.e.:

If the capacity factor turns out to be: The annual kWh Output would be:
     25%        455,520,000 kWh
     30%        546,624,000 kWh
     35%        637,728,000 kWh

Neither company has announced the size of the land area that would be occupied by the windmills and associated facilities. However, each undoubtedly will require several square miles of land to accommodate, respectively, 242 and 160 very large windmills.

The huge Texas projects will provide very little electricity, particularly when compared to total Texasí electric generation and to the output from "conventional" generating plants

The estimated annual kWh electricity output for the two projects ? 500,000,000 kWh for the FPL Energy-TXU Electric project and 455,520,000 to 637,728,000 kWh for the Reliant project -- sounds large when the numbers are presented without context. However, these electricity output numbers are tiny when considered in light of total Texas electricity production and/or annual production from other generating stations in Texas. Specifically:

1. Comparison with Total Texas Electricity Production. According to EIA, total electricity production in Texas during 1999 was approximately 352,230,000,000 kilowatt-hours (kWh). Electric utilities provided net generation of 290,478,000,000 kWh and non-utility generators provided 61,752,000,000 kWh. Therefore:
* The annual electricity output expected from the 242-windmill, 160 MW TXU-FPL Energy "wind farm" would equal .14% (i.e., 14/100 of 1%) of total Texas 1999 electricity production.
* The annual electricity output estimated above for the Reliant project (455,520,000 to 637,728,000 kWh) would be equal to .13% to .18% (i.e., 13/100 to 18/100 of 1% of total Texas 1999 electricity production.
* If the entire 2,000 MW of renewable capacity required by the Texas law consisted of wind and it operated at an unusually high 35% capacity factor, the 2,000 MW of wind capacity would produce 6,132,000,000 kWh of electricity. This amount would be equal to 1.7% of Texasí 1999 electricity production.

2. Comparison with existing Texas electric generating plants. As shown in the table below, the estimated output from the planned "wind farms" is relatively small when compared to the output of other newer generating plants in Texas. The small contribution of electricity
Comparison of Estimated Electricity Output from Planned "Wind Farms" with Actual 1999
Output from Some of Reliant Energy and TXUís Newer, Existing Generating Plants *
Company &
Generating Plant Generating
Units Capacity
In MW**
Fuel Unit
Type Generation (kWh)#
TXU-FPL Wind Farm 242 160.0 Wind Wind Turbine 500,000,000
Reliant Wind Farm 160 208.0 Wind Wind Turbine 455,520,000 to
637,728,000***
Reliant ? Existing Plants
   San Jacinto 2 176.4 Gas Combined Cycle 1,340,016,000
   Limestone 2 1,626.8 Lignite Steam 10,862,901,000
   South Texas 2 2,708.6 Uranium Nuclear Steam 19,413,369,000
TXU ? Existing Plants
   Sandow 1 590.6 Lignite Steam 4,656,362,000
   Comanche Peak 2 2430.0 Uranium Steam 17,346,530,000

* Data source: EIA, Inventory of Power Plants in the US January 1, 1999, Table 20; Electric Power Monthly, April 2000, Table 56A.
** Name Plate Capacity *** Estimates assuming, respectively, 25% and 35% capacity factors.
# Estimates for wind farms. 1999 Actual for existing generating plants.

that would be provided is particularly important when recognizing that:
* The electricity will be available only intermittently; i.e., when wind the wind is blowing at the right speed. When the wind conditions are not right, other generating facilities using "conventional" energy sources will have to be available to satisfy electricity demand.
* The large number of 660 kV wind turbines operating at the ambitious capacity factor of 35% that would be required to provide an equivalent number of kilowatt-hours of electricity (ignoring the intermittent availability of wind energy); specifically:

Generating Plant
1999 Actual Production Number of 660 kV wind turbines operating at 35% capacity factor required to equal 1999 production*
San Jacinto 1,340,016,000 662
Limestone 10,862,901,000 5,368
South Texas 19,413,369,000 9,593
Sandow 4,656,362,000 2,301
Comanche Peak 17,346,530,000 8,572

* Each such unit would produce 2,023,560 kV annually (i.e., 660 kV x 8760 hrs x 35% capacity factor)

The planned "wind farms" would not be built if a large share of the cost was not being shifted to (and hidden in bills paid by) taxpayers and electric customers as a result of federal tax shelters and the Texas "Renewable Portfolio Standard"

Producing electricity from wind-driven turbines (windmills) is widely recognized as more costly than producing electricity using coal, oil, natural gas, nuclear energy or hydropower. Because of the higher cost, electric generating companies and other developers would not be planning and building "wind farms" if it were not for subsidies and other "incentives." At present there are five potent incentives that provide the "encouragement" for building windmills to produce electricity in the US. Each of these "incentives" results in shifting costs ? principally from the "wind farm" owner or developer to taxpayers or to electric customers. The "incentives" are as follows:
1. Accelerated Depreciation. Under existing tax law, windmill owners can use 5-year double declining-balance accelerated depreciation for federal income tax purposes. For organizations with income to shelter from federal taxes, the practical effect of this generous tax benefit is to permit "recovering" 52% of the capital investment during the first 18 to 24 months after the project becomes operational. The remaining 48% is recovered in the ensuing 36 to 48 months. Some states provide similar benefits that shelter income from state income taxes. The tax burden avoided by the windmill owners is, of course, shifted to remaining taxpayers.
2. Production Tax Credit. Wind energy developers have a huge incentive to bring renewable generating capacity on line by December 31, 2001 so that they will qualify for a 1.7-cent per kWh production tax credit that is available for the first 10 years of the each windmillís life. Whether the tax credit will be extended for projects brought on line after December 31, 2001 is unknown at this time. The 1.7-cent rate is subject to upward adjustment for inflation. Even if the rate remained at the current 1.7 cents, the value of the credits would be as follows during the first 10-years of the life of the two Texas "wind farms":
* The TXU-FPL Energy project could qualify for payments of $85,000,000 (500,000,000 kWh x 1.7 cents x 10 years) if the expected output is achieved.
* The Reliant Energy project could qualify of payments of $77,438,400 (455,520,000 kWh x .017 x 10 years) if the capacity factor turns out to be 25%, or $108,413,760 (637,728,000 kWh x .017 x 10 years) if the capacity factor turns out to be 35%.
The production tax credit is in addition to the federal tax shelter benefits resulting from the availability for windmills of 5-year double declining balance accelerated depreciation for federal tax purposes.

3. Texas "Renewable Portfolio Standard" (RPS). Renewable energy projects, including the two "wind farms" described above, are the result of the Texas electric industry restructuring law passed in 1999. That law, in effect, requires that 2,000 MW of generating capacity using renewable energy technologies be built in Texas by 2009. Under the law, renewable technologies include solar, wind, geothermal, hydroelectric, wave or tidal energy, biomass or biomass-based waste products, including landfill gas. The Chairman of the Public Utility Commission of Texas was recently quoted as saying that 2,000 MW goal could be reached by January 1, 2002. As indicated earlier, the fully allocated cost of electricity produced from non-hydro "renewable" sources such as wind and solar energy is almost always higher than the cost of electricity produced from "conventional" sources (coal, natural gas, oil, nuclear energy and hydropower).

4. Higher prices for "green" electricity. Some electric distribution companies in Texas have programs that require that customers pay premium prices for electricity that is produced in whole or in part from renewable energy sources. As explained below, it is unlikely that the premium prices being charged for "green" electricity covers the fully allocated cost of producing and delivering the "premium" product.

5. Other Subsidies. In most cases, "green" electricity is subsidized in three other ways ? with costs being borne by electric customers and hidden in their monthly bills:

* First, when a utility is forced to provide higher cost electricity produced from "renewable" energy sources, and the full costs of that electricity cannot be recovered in its rates (even at premium prices), the higher cost electricity is still passed through to customers. In effect, the utilitiesí unrecovered cost of the "green" electricity is loaded on electricity produced from "conventional" energy sources (coal, natural gas, oil, nuclear energy and hydropower) and recovered from customers using that electricity.

* Second, since wind-produced electricity is available intermittently, electric utilities must provide backup electric generation to be immediately available when the wind is not blowing at the right speed. The extra cost of maintaining the backup power source should be allocated to the cost of the wind power.

* Third, electric utilities that provide special "green power" programs, including that provided at premium prices, incur extra costs in setting up, promoting and administering those programs. When these costs are not recovered from customers paying "premium" prices for "green power," they are loaded in the bills of customers using electricity from "conventional" sources.

6. Public relations. Many companies in the electric industry ? as well as regulators, legislators and other government officials -- are under tremendous pressure from environmental and renewable energy advocacy groups to use non-hydro "renewable" energy sources regardless of their cost. Companies, particularly those subject to regulation, often find that it is easier to "cave in" to the demands and implement higher cost "green" programs rather than incur adverse publicity and regulatory interventions from the advocacy groups. The higher costs are hidden in consumersí electricity bills.

Thus, many "green energy" projects are driven by public relations objectives rather than by sound business decisions that benefit customers or shareholders.

Claims about the potential contribution of wind energy are misleading in other respects

DOE and renewable energy advocates have issued false, incomplete or misleading information about wind energy. Such information has contributed to unrealistic expectations by the public, media, state officials and Congress that wind energy will play a significant role in reducing the need to rely on coal, natural gas, oil, nuclear energy and hydropower. Some examples have been presented above and two more follow:

1. Claims about the number of homes that would be served by wind energy are false or misleading. Wind energy developers have adopted a press release practice of estimating the number of homes that could be served by the electricity expected from proposed or planned wind farms. For example, TXU and FPL Energy have estimated that their planned 242-windmill 160 MW project would produce about 500,000,000 kWh of electricity each year or "enough to serve 29,000 homes." Such claims are misleading in two respects:

* First, residential electricity consumers accounted for only 36.2% of the electricity used in Texas in 1998. Industrial customers served by electric utilities in Texas used 33.7% and commercial customers used 25.3% of the electricity delivered by utilities in the same year. Other customers used the remaining 4.7%. Making claims for wind energy related only to "homes" is misleading.

* Second, electricity is available from windmills only when wind is blowing within the range required by the particular wind turbines. Actual output is low when wind speed is low and would achieve the fully rated 160 megawatts only if the wind speeds are high. As indicated earlier, electric customers cannot tolerate such variability in their electricity supply so electricity supplier must provide other generating facilities ? using the more "conventional" energy sources such as coal, natural gas, oil, nuclear energy or hydropower ? to serve customer demands when windmills are not producing or are producing only small amounts of electricity. Homes are not being served solely by wind-generated electricity.

2. Advocates overstate the potential for wind energy in the US by ignoring limitations on the sites that would be available for building windmills. DOE and wind energy advocates often claim that huge "wind resources" are available in the US, referring to the US (or parts of it) as the "Saudi Arabia of wind energy."

In fact, much of this US "wind resource" is not available for "wind farms" because of practical limitations on the availability or acceptability of specific sites; e.g.:

* Wind conditions must be adequate to power the windmills. This rules out nearly all the southeastern quadrant of the US and many areas in other quadrants.

* Windmills cannot practicably be sited in many areas; e.g.:
ß National and other parks and forests, recreation areas, wildlife refugees, migratory bird paths.
ß Areas where the terrain pr topography isnít suitable.
ß Developed and populated areas.
ß Highways, airports and airport glide paths.
ß Areas subject to health and safety considerations (e.g., falling windmills, blade throws or ice from blades).
ß Areas where the scenic impairment associated with windmills is unacceptable.
ß Residential areas.
ß Areas precluded due to neighborsí legitimate concerns about adverse impact on property values.

* Transmission lines must be available to move the electricity to the load centers where it is needed. This consideration rules out vast areas in the western and Midwestern US that are sparsely populated and where adequate transmission capacity is not now available. Electric generating units that produce electricity intermittently, such as windmills, would not justify the cost of constructing new transmission lines. Also, construction of new transmission lines is difficult in many areas because of objections from abutting landowners and others concerned about scenic or property value impairment. Furthermore, moving electricity over long distances (to places where it is needed) results in "line losses" reducing its true availability and increasing its cost.

Despite limited potential, millions in tax and consumersí dollars are being used to promote wind energy

Despite the limited contribution that can realistically be expected from wind energy, millions of our tax and electric customer dollars are being thrown at the technology, including:
* Generous shelters from federal and some state taxes for wind developers through accelerated depreciation and production tax credits.
* Tax dollars flowing through the US Department of Energy (DOE) to DOE "national laboratories" and other contractors, subcontractors and grantees for research, development and demonstration projects, for "studies," "analyses," reports, and web sites containing false and misleading information, and to support lobbying for more tax dollars for DOE programs.
* Subsidies for renewable energy provided by various state governments, some taken directly from taxes and others taken from electric customers via hidden taxes called "public benefit charges."
* "Renewable Portfolio Standards" and other cross-subsidies for renewable energy that result in loading part of the cost of renewable energy on electricity generated from other energy sources.
* Ignoring part of the cost of wind energy by failing to account for fully allocable costs, including backup power costs, extra transmission costs and costs of administering "green" electricity programs.
* Use of tax dollars by federal, state and local governments to install costly renewable energy facilities or purchasing "green" electricity premium prices.

Conclusions

The preceding analysis of the two huge "wind farms" recently announced in Texas demonstrate clearly that wind energy is a niche technology that will do little to offset the need for the people of the United States to depend on coal, natural gas, oil, nuclear energy and hydropower for their electricity for years to come.

Unfortunately, the US Department of Energy and various renewable energy advocacy groups continue to distribute false and misleading information concerning the potential for and benefits of wind energy ? often financed with money taken from taxpayers and consumers.

False and misleading information is contributing to unwise policies, programs and regulations adopted by federal and state governments.

Endnotes

FPL Energy press release, TXU Electric and FPL Energy announce major wind power project.
That is, 160 MW divided by 242. Subsequent announcements confirm that the windmills will be 660 kV Vestas.
That is, 500,000,000 kWh expected output divided by 1,401,600,000 kWh, which is the theoretical maximum output of 8760 hours per year times the rated capacity of 160,000 kW.
Reliant Energy Press Release, "Reliant Energy Announces Formation of Reliant Energy Renewables, Inc.; Start of Wind Power, Landfill Gas-to-Electricity Power Generation Projects," August 24, 2000.
Capacity factor as used here means the net output in kWh divided by the product of the windmillsí total rated capacity (i.e., 208,000 kW) times 8,760 hours per year.
The calculation is simply 208 MW (208,000 kW) x 8760 (hours per year) x .25, .30 or .35
EIA, Electric Power Monthly, March 2000, tables 7 and 62 ? 66.
That is, 500,000,000 kWh divided by 352,230,000,000 kWh = .001419 or .14% (rounded).
That is, 455,520,000 and 637,728,000 kWh with each divided by 352,230 kWh = .0012932 and .0018105.
Electricity Daily, September 5, 2000, page 1.
EIA, State Electricity Profiles, Texas, Table 8, 1998.