Economics

One of the main benefits of wind energy is economic gain, both for individuals and for communities. Individuals can save money on their energy bills, and even make money by generating wind power. Communities can diversify their economies and enjoy greater reliance on local resources when their members invest in wind.

Of course, a wind project will provide these advantages only if the economics have been thought through in advance. Like any investment, wind energy projects require some research and a basic understanding of the risks, costs, and benefits involved.

Risks

Every financial investment carries with it a certain amount of risk. There are three basic ways of investing in wind energy, each of which entails a different level of risk.

* Leasing Your Land: The least risky way to harvest the wind is to let someone else put up the capital and operate the wind project. You receive payments for the use of your property, while another party constructs and maintains the project.

* Investing With Others: You can share the risks of a wind energy project by investing with others. The advantage to this approach is that you can share responsibilities and costs.

* Investing On Your Own: The most risky method is to install and maintain your own turbine or turbines. You assume all the costs and responsibilities, but you also reap all the profits.

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Costs

There are several components in the cost of a wind project. They include the cost of the turbine itself, construction costs, interconnection fees, metering equipment, maintenance and repair, and any consulting services you use. How much your wind project costs will depend on your financing arrangements, the size of your project, and taxes.

As you go about planning your wind project, you must estimate these costs. Some will be straightforward: you can contact a turbine manufacturer and find out how much a particular turbine and tower cost. Others will be less definite: you can't accurately know ahead of time how much maintenance and repair your turbine will require. You can however, talk to other owners of similar turbines. There are also standard guidelines to estimate costs as accurately as possible.

States and the federal government have developed incentives for wind energy investors. For example, in fourteen states a turbine purchaser does not pay state sales tax for their wind energy system. Small projects are often exempted from state permitting procedures. Some states also provide low-interest loans for wind projects, exemption from property taxes, and accelerated rates of depreciation for renewable energy equipment. At the federal level, the U.S. Department of Agriculture offers a grant program for eligible wind projects. Also, the Clean Renewable Energy Bond (CREB) program is a new federal financial incentive created in the Energy Policy Act of 2005. CREBs are tax credit bonds with an interest-free finance rate that are available to municipal utilities and electric cooperatives for renewable energy projects. These and other incentives may help to reduce your wind project costs.

Because turbines are business investments, they can often bring substantial tax savings to their owners. The federal government currently offers a 1.9 cent/kWh tax credit for energy generated by wind turbines, available for projects installed by December 31, 2007 for the first ten years of operation. The tax credit is adjusted for inflation, so it will rise over time.

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Benefits

The economic rewards of owning or leasing a turbine operation fall into three categories: 1) the electricity you don't have to pay for (because you're producing it yourself), 2) revenue you receive for the energy you produce, and 3) tax savings and federal and state incentives.

You may not necessarily enjoy all of these rewards. For example, with a small turbine you might produce enough electricity to lower your electric bill, but you might not have excess to sell and thus you would be ineligible for the federal tax credit. Nevertheless, offsetting your electric use can still be an economic gain, even if you're not receiving a check for your turbine production.

With a farm-sized turbine, you might sell excess energy to your electric company. Your turbine will first supply your own power needs on site, and then any excess generation can be fed into the grid. Under a system called net metering, when your excess power reaches the grid, your meter will run backwards. If at the end of the billing period you have generated more electricity than you have used, your electric company pays you for the difference.Many US states currently have some type of net metering provision for wind turbines, generally for systems under 25 or 50 kW.

Federal laws have historically required utilities to buy electricity from large wind systems only at their avoided cost, although restructuring of the electric industry is opening some additional purchasing options. The avoided cost is the estimated cost the utility would incur to produce an incremental amount of extra generation. The retail rate is simply the price residential customers pay to buy electricity. The retail rate is higher than avoided cost. Utilities buy electricity from wind systems at the retail rate only in Minnesota and Wisconsin.

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In Summary

“Know Your Economics” is a brief outline of the economics of wind energy. If you're interested in harvesting the wind, you can learn much more about how to evaluate risks, costs, and benefits from other sections of the Windustry website. Workshops and computer software are available to help you calculate the costs and benefits of your particular project. Our Wind Project Calculator is available to help you perform quantitative economic analysis. See also the Database of State Incentives for Renewable Energy for additional information about net billing and other programs and policies that may help lower your costs.