Economics and Public Policy

Public Policy and the economics of wind energy are closely related. Governmental support in the form of subsidies, grants, purchasing contracts, and tax incentives, all tools of public policy, helps keep wind energy generation competitive with other forms of generation, all of which receive their own support. The best example of public policy positively affecting economics in regards to wind energy is Denmark’s wind industry. They have become experts at not only installation on and offshore, but in turbine design and manufacturing.

The industry is so successful, that in 2005 Danish manufacturers supplied 40% of the turbines and related parts worldwide. 99% of the capacity produced that year was exported. Denmark hopes to make itself the wind power hub of the world. Its industry had made over 21,000 jobs in Denmark, and almost 25,000 worldwide. Wind energy has a 20% penetration level in Denmark, with 3,100 installed MW, and in 2004 there was a national agreement for 750 MW more. Denmark’s pro-wind policies are also facilitating the gain of experience and knowledge needed to manage such a high penetration of wind energy in a national grid, one of the technological challenges of using wind to its full potential.

Public policy is not the same all over the world. In the United States, every few years a tax credit must be approved by Congress, called the Production Tax Credit (PTC). The PTC gives developers of new wind installations a ten year period where they are credited with 1.9 cents (as of 2005, price adjusts with inflation) per kWh of energy produced. This is enough to make a difference between a development being a good or bad investment. The tax credit itself is effective, but the necessity of renewing it every two years adds to the risk undertaken by developers. Wind is not the only form of generation subsidized in the U.S. Of $150 Billion in subsidies for nuclear, solar, and wind energy over a fifty year period, 96% went to nuclear generation. Over $35 Billion has been paid to coal miners suffering from “black lung” disease over the last 30 years. These are just two examples of the need for subsidies for wind energy in order to level the playing field.

Subsidies aside, the external costs of energy production cost a tremendous amount of money, much of which is not accounted for against the generator. A European study attempted a cost benefit analysis of different types of generation, which the researchers admitted was a complicated and constantly evolving task. However, wind energy came out on top when the effects on human morbidity and mortality, crop damage, material damages, global warming, amenity losses, and ecosystem damages were considered. In EU member nations, wind energy had the lowest range of costs, at 0 to .25 cents/kWh. Hydropower was between 0 and 1 cent/kWh, and fossil fuels ranged up to 15 cents/kWh. Nuclear power was low, between .2 and .25 cents/kWh, but this does not include the possible effects of an accident. The same study was considered Germany alone, and it was found that when noise, health, materials, and crop damages were considered, wind was slightly more per kWh than hydro, at .08 cents/kWh compared to .05 cents/kWh. Coal was .75 cents/kWh, and nuclear was .17 cents/kWh.

These normally unseen subsidies, costs, and effects help show a clear picture of how wind compares to other forms of generation from an economic standpoint, and how its economics are affected by public policy. Cost benefit analysis is one tool, however inexact, that can help generate this clearer picture. By applying a cost to a case of child asthma, we can reduce complicated human issues to a more understandable scale, and reach a decision using finances as a surrogate issue.

Finances play an important role in the life of individuals affected by wind energy as well. Many people believe that the placement of wind turbines close to, or within the viewshed of their homes or businesses will cause them an undue financial burden. There is a fear around the world that the presence of wind turbines in the viewshed will discourage tourism, and lower real estate prices. A study by the Renewable Energy Policy Project (REPP) studied 10 wind power sites and their surrounding areas in the United States, and found little evidence of wind power having a negative effect on real estate prices. In addition, a recent poll of Delaware residents showed that they do not have an aversion to wind energy, and would for the most part, continue to visit Delaware beaches even with turbines visible on the horizon.

One positive effect on the finances of individuals, is that some farmers have struck a deal to reap a second crop by hosting wind turbines in Upstate New York. Dairy farmers lease small plots of land to wind developers. The turbines don’t take up much land, and according to the farmers, don’t bother the cows. In this way, the wind is bringing financial security to an industry that can fall on hard times because of the weather.

Maintaining energy security is another benefit that has economic effects. A nation like Japan has very little in the way of natural resources, and if the price of fuel were to rise, or the supply was threatened or ran out, they would be unable to meet their energy needs without radical changes to their infrastructure. In 1996, Japan imported 81% of its primary energy fuel, and almost 99.7% of its petroleum, and is not alone as a net importer of energy. Energy supplies and prices can be affected by war, unfriendly relations between nations, and supply issues. Pipelines can be shut down, tankers sunk, wells burned, and prices can be raised at will by suppliers. Generating energy from within the borders of a nation insures that nation a supply of electricity, barring an attack on facilities or a natural disaster.