Glenn R. Schleede Response to - Franklin County Wind Farm Could Have Large Economic Impact

Dear Ms. Raymo:

Thank you for your story in today's Press-Republican, "Wind farms could have large economic impact."

I respectfully suggest that you get a copy of the detailed analysis presented to county legislators in Malone by the president and chief economist for the Center of Governmental Research and check the validity of the analysis and conclusions. It appears to be seriously in error on several points.

Please be aware that the favorable economic impact of "wind farms" is often overestimated. For example, I'm attaching a recent evaluation of the of the Energy Plan for New York State announced on April 19, 2007, by Governor Spitzer, NYSERDA and NYS PSC. As this evaluation points out, the claims of economic benefit made for that plan are grossly overestimated because of fundamental errors in the economic analysis (e.g., assumptions about the economic benefit of the capital cost of the "wind farms" selected for additional subsidies from NYSERDA). (See pages 10-12 in attached "Evaluation" paper.)

I also suggest that you investigate the claim that the "wind farm" developer "would make about an 8-percent return on its investment each year of operation." That number is almost certainly a gross underestimation. In this connection, you may want to look at the detailed tables in the attached paper which shows the amount that "wind farm" owners would receive in tax breaks and subsidies that would flow to the developer.

It's unclear from your story how the "8-percent...on its investment" was calculated. However, recent news stories have indicated that a large share of the capital cost of Noble "wind farms" in New York would be financed by borrowing from GE, which means that Noble's equity investment would be only a minor part of the capital cost. You should be aware that, under very generous federal (and NY) tax laws, "wind farm" owners can recover the entire capital cost of a "wind farm" (whether financed by equity or debt) in the first tax year. In fact, 52% of the total can be recovered in the first 2 years. Because of these generous accelerated depreciation allowances (called 5-yr, 200% declining balance - MACRS), it is highly likely that Noble would be able to recover all of its equity investment in the first year or two of operation. Thereafter, the company would, in effect, have no outstanding equity and it's return on equity would be infinite!

This rapid recovery of equity does not take into account the additional generous tax shelter that would be available to the company in the form of the federal Production Tax Credit of $0.02 per kilowatt-hour for each kWh of electricity produced by the "wind farm" during the first 10 years of operation.

You should also be aware that claims about local job impact of "wind farms" are generally overstated. An overwhelming share of the jobs during the relatively short construction period are generally filled by people with specialized expertise (e.g., assembling towers, turbines, blades, electronics) who are brought into the area for temporary work. (In the case of one wind farm in Iowa, only 20 of 200 construction jobs were filled by local workers. Also, the workers brought in temporarily may pay income taxes in other states rather than in NY) Jobs filled by local workers are likely to be among the lower-paid ones. The estimate of 38 jobs during "regular operations" also appears unusually high.

Another area of common error when estimating favorable economic impact occurs when considering local purchases. Often, analysts will incorrectly count the entire cost of a local purchase rather than local (or state) value added. (See page 11 in attached "Evaluation" paper.)

Please recognize that overestimation of favorable local and state economic impact of "wind farms" is a common problem. In fact, a second paper that is attached explains that an economic model developed for the National Renewable Energy "Laboratory" (NREL) contains serious errors that result in overestimating favorable economic and job impacts.

I recognize that the above may seem complicated but, the attached paper should be helpful to you in gaining an understanding of the issues quite quickly.

Clearly, the claims made by Noble and the center of Governmental Research need to be investigated in more detail so that local government officials and your readers can have a more complete story on true economic impact of "wind farms" proposed for your area.

Respectfully,

Glenn R. Schleede
18220 Turnberry Drive
Round Hill, VA 20141-2574
540-338-9958