A Lot of Hot Air

Over the last two weeks, a number of significant arrests have been made of those involved in the wind-power industry. The most high profile of these was the arrest of Oreste Vigorito, head of the IVPC Energy Company and president of Italy’s National Association of Wind Energy. The charge is fraud. Vito Nicastri, a Sicilian business associate of Vigorito, was arrested in Alcamo, Sicily. Two other men were arrested in Sicily and the Naples area, while 11 others were charged but not arrested.

The wind power industry is heavily subsidized. In the charge, it is alleged that the government subsidies were used to build wind farms that were not able to operate, with the owners pocketing large amounts of public funds while not returning any services to the public for these funds.


In the financial year 2007-08, UK electricity customers were forced to pay a total of over $1 billion to the owners of wind turbines. That figure is due to rise to over $6 billion a year by 2020 given the UK government's unprecedented plan to build a nationwide infrastructure with some 25 gigawatts of wind capacity, in a bid to shift away from fossil fuel use. Capacity is not the same as use. According to U.K. government statistics, the average load factor for wind turbines across the U.K. was 27.4%. Thus a typical two-megawatt turbine actually produced only 0.54 MW of power on an average day. The worst-performing U.K. turbine had a load factor of just 7%. These figures reflect a poor return on investment. This poor return is often obscured by the subsidy system that allows turbine operators and supporters to claim they can make a profit, even when turbines operate at very low load factors. They only profit from subsidy and a legal requirement for energy providers to use renewable energy.

Roger Helmer, the European MP who is skeptical about wind-farms, recently noted that all wind farms require back-up systems to provide energy when wind is low or power from the wind farms is intermittent. The British Wind Energy Association (BWEA) suggests that some 75% of capacity needs to be backed up by coal or gas fired power systems. Generating industry players like E-ON say over 90%, while a recent UK House of Lords Report suggests that some 100% back-up will be required, effectively cloning the capacity. The back-up generation capacity will run intermittently, variably and sub-optimally to compensate for wind variation — and therefore run inefficiently, with higher costs and emissions than necessary.

Subsidy levels vary by jurisdiction. In the US, the Production Tax Credit (PTC), recently extended for another year, is a 1.8-cent tax credit per kilowatt hour for the first ten years of the wind turbine's life. Average electricity rates fall between 7 and 11 cents per kilowatt hour, so the credit amounts to a subsidy of between 16 to 25%. This is not the only subsidy that wind energy industry gets. Several US states offer tax breaks on operating revenue, and allow write-offs for capital investment. State laws that require a certain percentage of electricity to be produced by renewables guarantee that there will be a market, no matter what the cost. In the UK, subsidy levels are now at wind involves a total subsidy of as much as £60 per MWh, the entire burden of which falls directly on electricity consumers, whether they want renewables or not.
The two motives for encouraging wind-power are CO2 reduction and job creation. On the CO2 front, things do not look good. For example, Denmark, with the highest intensity of wind generation in Europe, has amongst the highest per capita emissions in Europe. The German experience is no different. Der Spiegel reports that “Germany’s CO2 emissions haven’t been reduced by even a single gram,”

In Spain, a report by a highly respected economics unit found the nation’s push for huge expansion of alternate energy sources had no positive impact on job creation and instead appeared to have caused job losses by diverting resources in ways that hurt the overall economy. The jobs that were created required enormous subsidies – ranging from $752,000 to $1.4 million per position created – and often were only temporary. In Oregon, an investigation published in The Oregonian newspaper shows that a tax-credit program meant to spur the construction of solar and wind power plants in the state cost 40 times more than the administration told legislators it would. Lax oversight meant many dubious projects were given millions of dollars. Job gains were few.

So why is wind power so important? It is a sign that politicians can use to suggest that they are responding to the perceived threat of climate change. Fraud, subsidy, lack of impact and high costs together with the myth of job creation will not stop politicians committing to more wind-farms, with Alberta leading Canada’s rush to look responsive. It is a shame that no one is looking critically at what this rent-seeking and grant-farming industry is really all about. Perhaps the Italian courts will help us see the reality of this industry.