The Economics of Wind II: Subsidies – the why and how much.


Big wind developers receive substantial federal funds and whether they ought to or not is a major bone of contention as more wind farms pop up in Maine.

The arguments from both sides of the issue go something like:

Pro: Lots of other energy sources (coal, oil, nuclear) are subsidized, too.

Con: Wind, given the size, gets more than its fair share.

Pro: Subsidies are important to jump-start the industry.

Con: If it can’t stand on its own, tough. It shouldn’t stand at all.


And maybe trumping those arguments: Maine has said, in law, it wants more wind power — and, nationally, subsidy is simply part of how wind power gets paid for.

First Wind, for example, received $40.4 million last fall for putting up 38 wind turbines in eastern Maine, an upfront cash payment of the federal Production Tax Credit (PTC) stepped up through the stimulus funds.

“It’s a pretty established set of criteria you have to meet and if you happen to meet it you’ll receive this grant; if you don’t, you won’t,” said spokesman John Lamontagne in Boston.

In 2007, at the request of a Tennessee senator, the U.S. Energy Information Administration looked at federal energy subsidies by industry and found, in sheer dollars, refined coal got the most money and support at $2.1 billion, three times that of wind. Unrefined coal and nuclear both got more than wind as well. But compare all three by their ratio of subsidies-to-output and wind jumps to the top as most expensive.

Among the federal incentives for wind are the PTC, the Investment Tax Credit and the Renewable Energy Tax Credit, the last of which is the only one that ought to be considered special compared to oil or gas, according to former state economist Charles Colgan.

It amounts to a credit for not polluting.

“(With) wind energy you have a substantial external benefit, which is the environmental impact of generating that electricity with no emissions,” he said. “That benefit is not captured in the electricity prices that people pay. We don’t pay a premium for the polluting forms of energy and we don’t pay less for the nonpolluting forms.”

Nuclear energy got started on federal dollars after World War II, he said. Oil has also received breaks along the way.

“The oil depletion allowance has been a significant tax subsidy to the oil industry going back 70 years,” said Colgan, a professor at the University of Southern Maine’s Muskie School of Public Service. “You’re allowed an extra deduction simply for the fact you’re taking oil out of the ground.”

The impetus: Government wanted more companies taking out more oil. It’s the same now with developing wind.

J. Dwight, a Wilton economist on the board of advisers for the Maine Heritage Policy Center, said those perks add up to too much.

Wind companies, he said, have the right to sell tax credits they can’t use to larger firms for more money in hand and the ability to write off the value of their venture over five years, something called double-declining depreciation: “It’s a much speedier return to the investor because they get sheltered on the taxes they would otherwise have to pay.”

Los Angeles attorney Ed Feo estimated that two-thirds of the cost of some projects are covered by federal subsidies. (He adds a 30 percent benefit from the PTC with a 25 percent benefit from accelerated depreciation.)

That two-thirds figure was subsequently picked up by Glenn Schleede, a semiretired energy executive in Virginia, prolific in his papers against wind power. He who says he’s never done the math himself. Schleede’s papers have been picked up and added to the Maine debate by wind opponents.

“I’m very aware of what your governor’s attitude is. I think it’s really ill-advised,” Schleede said in a phone interview.

In one paper, he argues that “tax avoidance” is the driver behind all the wind industry activity, not looking out for the environment or encouraging alternative energies.

Colgan said getting subsidy as high as 60 percent is “theoretically possible,” likely very rare and difficult to judge without a look at confidential books.

“In any event … the tax subsidies are there for a legitimate economic purpose: to gain the environmental benefits of wind power sooner than would be the case if we waited for oil prices to rise high enough to make wind a good investment on its own,” he said.

Former Gov. Angus King said the upfront cost is four times as much to create a megawatt of wind power compared to a megawatt of energy at a natural-gas burning plant, $2 million vs. $500,000.

“These are very big, expensive projects,” said King, who’s one of the people behind the proposed wind farm in Highland Plantation and Record Hill in Roxbury, which halted construction last fall.

“The bulk is going to be privately financed, like you’d finance a shopping center or anything else,” he added. “It’s accurate to say the projects need the tax benefits to go forward today. It’s not accurate to say that will always be the case.”

In 2009, Maine adopted a 50-year comprehensive energy plan that recognizes oil won’t be here forever, said John Kerry, director of the Office of Energy Independence & Security.

“Say you have a trillion barrels in reserve. Someday, that’s going to be billions of barrels, someday, millions,” Kerry said. “I think it’s myopic to make decisions on marginal economic (factors) today. We have to invest. In the long run, the cost will be less, not only in the quality of life but financially.”

He said he isn’t aware of any subsides Maine gives specific to big wind projects.

Seven towns have entered into tax increment financing (TIFs) deals with developers, according to the Department of Economic and Community Development, keeping some new tax revenue from projects and returning more than $46 million to developers.

“Some people argue, did we give away too much, did we get too little,” said Chris Gardner, a Washington County Commissioner who helped craft a TIF with Stetson I wind project. His take: “Forty percent of something is a whole hell of a lot better than 40 percent of nothing.”

Washington County plans to create a revolving loan fund for businesses with some of that tax revenue.

Ruth Birtz, assessor and code superintendent in Lincoln, said that town hasn’t even started planning how to spend its TIF funds; First Wind’s Rollins project is tied up in the Maine Supreme Judicial Court with briefs due this month. The town has spent more than $14,000 so far defending its decision to issue a project permit.

[email protected]