Wind Farms: Not Just Hot Air

By Anthony La Malfa

The U.S. wind energy industry boosted its capacity to an estimated 11,603 megawatts (mw) in 2006, a 27 percent increase over the prior year. One mw of wind power produces enough electricity to serve 250-300 homes on average each day, so current facilities can serve approximately 2.9 million homes. Says the American Wind Energy Association (AWEA), this clean source of energy displaces as much as 2.3 million tons of carbon dioxide emitted by traditional energy sources. For this reason, the federal government and many states offer tax incentives to increase the use of wind farms.

The Production Tax Credit (PTC) for wind and other renewable energy projects provides a 1.9 percent per kilowatt tax credit for electricity generated over the first 10 years of a project's operation. The credit will expire at the end of 2008 and there is concern that it will not be renewed. Construction costs for wind-powered electric generators are much higher than for fossil fuel plants (cost per megawatt capacity is $1.5-2 million for wind versus $700,000 for natural gas), and by one estimate, the extension of the credit from 2006 to 2007 cost the U.S. Treasury $2.75 billion. That number is likely to mushroom as the industry continues to grow.

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.

The five states having the most potential for wind energy projects are North Dakota, Texas, Kansas, South Dakota and Montana. However, according to the AWEA, 16 additional states together have the potential to generate 50 or more billions of kilowatt hours. In one case, a 120-square mile wind farm is planned, which would be the largest in the world. More typically, 30 or more acres are required for a project because of the wind's unpredictability.

The largest investor in wind farms in the United States is the FPL Group, Inc., one of the nation's largest providers of electricityrelated services. Wind now represents 12 percent of the FPL Group's diversified energy portfolio, and it is growing along with natural gas and nuclear. The company was responsible for one third of the nation's new construction of wind power installations last year.

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 plat 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 produce, purchase the necessary equipment and arrange to have it installed.

Wind turbines come in a variety of sizes, depending upon the use of the electricity to be generated. A large utility-scale turbine might have blades 40 meters long, meaning the diameter of the rotor is over 80 meters—nearly the length of a football field. A turbine is mounted on towers as much as 80 meters tall and can generate 1.8 megawatts of power—enough electricity for 600 homes. Total cost can be more than $1.5 million.

Anthony La Malfa is a manager in the Real Estate & Hospitality Services Group in the New York office of BDO Seidman, LLP. He can be reached at (212) 885-8378.

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