By Jackie Boone, CPA
The U.S. wind energy industry boosted its capacity to an estimated 16,800 megawatts (MW) in 2007, a 45 percent increase over the prior year. One MW of wind power produces enough electricity to serve 225-300 homes on average each day, so current facilities can serve approximately 4.5 million homes. According to the American Wind Energy Association (AWEA), in 2006 this clean source of energy was estimated to displace as much as 15 million tons of carbon dioxide, 76,000 tons of sulfur dioxide and 36,000 tons of nitrogen oxides that would otherwise have been emitted by traditional energy sources.
According to the U.S. Department of Energy, the world's winds could theoretically supply the equivalent of 5,800 quadrillion BTUs (quads) of energy each year--more than 15 times current world energy demand. (A quad is equal to about 172 million barrels of oil or 45 million tons of coal.) Wind also has one of the highest energy payback ratios of any power technology. Energy Payback Ratios (EPR) compare the amount of energy produced by a power plant to the amount of energy it takes to build, run, and eventually decommission that plant. The more efficient the technology, the higher the EPR. A wind turbine typically takes only a few months (3-8, depending on the average wind speed at its site) to "pay back" the energy needed for its fabrication, installation, operation, and retirement. For these reasons, the federal government and many states offer tax incentives to increase the use of wind farms.
Tax Incentives
The Production Tax Credit (PTC) for wind and other renewable energy projects provides a $.02 per kilowatt hour tax credit for electricity generated over the first 10 years of a project's operation. The credit is set to expire at the end of 2008 unless it is renewed by Congress.
In New York State, real property that contains a solar, wind, or farm waste energy system approved by the New York State Energy Research and Development Authority (NYSERDA) is exempt from taxation for a period of 15 years to the extent of any increase in assessed value due to the system. This tax exemption applies to property constructed prior to January 1, 2011. NYSERDA also provides incentives for eligible small wind systems. NYSERDA has identified a total of 19 wind system models made by 8 different manufacturers as being eligible for the incentive. The eligible models range in size from 800 W to 250 kW. Each model is eligible for a different base incentive which can be increased or decreased depending on the height of the tower used for the system. Standard incentives range from $4,000 to $120,000. The actual incentive can also be adjusted depending on the classification of the wind system owner. Residential, business, institutional and governmental participants receive the standard incentive, adjusted accordingly for the tower height. Commercial farms, non-profits, municipalities and counties, however, can multiply their incentive by 1.2. Schools or colleges that include wind in their curriculum can multiply their incentive by a factor of 1.4.
Farmland Benefit
Wind farms can revitalize many rural communities, since a single wind turbine on a wind farm can earn up to $4,000 annually per megawatt even though only 2 to 5 percent of the land within the wind farm boundary is actually used for turbines and access roads. Wind power plants also can be a valuable source of tax income for local governments and also as a source of employment.
Private Investors
A typical large wind project can draw many players. Primarily responsibility lies with the developer, who negotiates with a landowner for the right to “harvest the wind” above the land and place a turbine on a small plot of land, typically less than one acre. According to the AWEA, leasing the right to harvest the wind over a farm can more than double the annual net income from cultivation or grazing. A developer also must find financing, secure a contract with a utility to buy the electricity produced, purchase the necessary equipment and arrange to have it installed.
Concerns about wind energy
The wind industry is working with environmental groups, federal regulators, and other interested parties to develop methods of measuring and mitigating wind energy's effect on birds. Studies have shown that no matter how extensively wind is developed in the future, bird deaths from wind energy are unlikely to ever reach as high as 1% of those from other human-related sources such as hunters, house cats, buildings, and autos. (House cats, for example, are believed to kill 1 billion birds annually in the U.S. alone.) Still, areas that are commonly used by threatened or endangered bird species should be regarded as unsuitable for wind development.
Noise was an issue with some early wind turbine designs, but it has been largely eliminated as a problem through improved engineering and through appropriate use of setbacks from nearby residences. A small amount of noise is generated by the mechanical components of the turbine. To put this into perspective, a wind turbine 300 meters away is no noisier than the reading room of a library.
Public Opinion
Jackie Boone, CPA is a manager with Mengel, Metzger, Barr & Co. LLP. She may be reached at JBoone@mmb-co.com.