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Wind Power Just Hot Air

Wind power costs a lot to build and nothing to operate. Could it hammer the profits of power utilities that currently charge a premium to light your home by burning the decayed remains of ancient organisms? Investors shouldn't be too worried, according to Lasan Johong, an analyst with RBC Capital Markets. Johong says that increasing our reliance on wind power could actually raise power prices significantly.

Ignore predictions that windmills will ruin the fat profits of power companies.

Wind power costs a lot to build and nothing to operate. Could it hammer the profits of power utilities that currently charge a premium to light your home by burning the decayed remains of ancient organisms? Investors shouldn't be too worried, according to Lasan Johong, an analyst with RBC Capital Markets. Johong says that increasing our reliance on wind power could actually raise power prices significantly.

Although power utilities don't have exactly the same static monopoly they once did, thanks to the haphazard division of power producers from power distributors, their basic business model remains mostly unchanged. As Warren Buffett has said to his shareholders, power companies make nice with their customers via state regulators and, in exchange, customers allow them a fixed return on their investments.

What happens if you throw free electricity into this mix, though? A zest for renewable energy (in the form of government mandates and subsidies) has utilities, investors and landowners erecting windmills anywhere with a stiff breeze. (See "Wind Power: Can It Make a... more [truncated due to possible copyright]  

Ignore predictions that windmills will ruin the fat profits of power companies.

Wind power costs a lot to build and nothing to operate. Could it hammer the profits of power utilities that currently charge a premium to light your home by burning the decayed remains of ancient organisms? Investors shouldn't be too worried, according to Lasan Johong, an analyst with RBC Capital Markets. Johong says that increasing our reliance on wind power could actually raise power prices significantly.

Although power utilities don't have exactly the same static monopoly they once did, thanks to the haphazard division of power producers from power distributors, their basic business model remains mostly unchanged. As Warren Buffett has said to his shareholders, power companies make nice with their customers via state regulators and, in exchange, customers allow them a fixed return on their investments.

What happens if you throw free electricity into this mix, though? A zest for renewable energy (in the form of government mandates and subsidies) has utilities, investors and landowners erecting windmills anywhere with a stiff breeze. (See "Wind Power: Can It Make a Profit?") Much of the guaranteed return on investment for new wind power will fall not to the companies that run the electric grid but to individuals and businesses with land, cash or green guilt aplenty. That doesn't look like a good deal for power companies, at first. Electricity rates are heavily regulated and designed to allow utilities to recoup their costs with a small profit. In the middle of the night, with little demand for power but laws that mandate purchases from wind farms, the cost of electricity can drop to zero. (See "Wind Power's Weird Effect.")

That won't be long-lived, says Johong. Power companies, buying electricity from wind farms, will seek to resell it at cost, including the markup for investment. Wind power is also unlikely to meet demand, even in the middle of the night, and utilities will be able to select form which wind farm they buy, giving them a chance to seek out power sources that allow them to pass costs on to consumers.

In fact, requiring that wind power be included by utilities could well raise the price of electricity and make it more volatile. Compared with other forms of generation, windmills are expensive. Johong figures their cost at $8,0000 per kilowatt-hour since they tend to operate at a quarter of their peak capacity. Such is the cost of relying on a fickle thing like wind. Compare that with coal ($3,500 a kwh), geothermal ($1,000 a kwh) and nuclear ($5,000 a kwh).

As power companies come to rely more and more on windmills, they will likely shut down some plants (reducing pollution is the point, after all) and rely more on backup power for times when demand is heavy but there is no wind. Such backup power plants are expensive to run and Johong thinks prices for peak times could rise substantially, adding volatility to electricity prices.

We should throw the "elected officials" out of office for junking up our environment and doubling our electricity prices with these useless monsters. Wind is a perfect example of "anti-capitalism".

 Perhaps the best indication that wind power may not be a threat to utilities: Warren Buffett bragged to shareholders earlier this year that Berkshire Hathaway ( BRK - news - people ) has invested heavily in wind power. The world's most famous investor said his conglomerate's major utility, MidAmerican, had increased wind power from zero to a fifth of capacity, investing $1.8 billion in 2008 and making it the biggest owner of wind power of any utility in the U.S.


Source: http://www.forbes.com/2009/...

OCT 21 2009
http://www.windaction.org/posts/22784-wind-power-just-hot-air
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