Business Ethos Blog

Is ‘Free’ Money A Good Thing?

Dr. David Mielke is a Retired Dean of the College of Business at Eastern Michigan University

Last week the Ann Arbor City Council voted 10-0 to accept and appropriate $951,500 in federal grant money from the U.S. Department of Energy for a wind turbine project.  New York-based Wind Products Inc. has proposed a project in partnership with the Ann Arbor public schools on a potential $1.4 million wind energy project.  The exact location has not been determined, but two turbines will be located at one of the three Ann Arbor high schools.  According to the presentation to council:

1. The grant requires a $484,390 local match, but city officials have found a way around making a cash contribution.  Would be interesting how they can do this—a money tree?

2.  The city’s contribution will be $18,590 in staff time.

3.  The cost estimates do not include legal costs.

4.  The project is to provide a “hands on” learning opportunity for students.  How will students do hands on?

5.  There will be a “little bit of financial benefit from the project” because they will be guarateed a price for power that is a bit less than current costs.  The city would also receive renewable energy tax credits.  How much more government subsidy?

6.  The developer wants to make money out of the deal.

Here are some details not available:

1.  Will there be an environmental impact study?  There is for every other wind project.

2.  What about the impact on birds?  Has anyone looked at that possible impact?

3.  Studies have shown that the Ann Arbor location is not a good location for wind power because of the low average velocity.

4.  What is the city’s ongoing liability for insurance, maintenance, etc.?

5.  Will zoning laws be required to allow the height and installation of the turbines?  If so, will the zoning allow anyone to build a turbine?

6.  Will the developer be required to follow the same approval process for this project if it was not a deal with the city?  Is this a short cut to approval?

Given this information, is accepting this free money the “Right Thing to do?”
This whole project should be looked at in the national context.

1.  We just had an eleventh hour fiscal cliff deal that provided another $12 billion for wind power subsidies.  This is an industry that still needs government support after 20 years.

2.  We are participating in additional federal spending that provides a subsidy to Wind Products of $52.48 per one million kilowatt hours, while nuclear gets $3.10, hydropower 84 cents, coal 64 cents and natural gas 63 cents.  The subsidies are so high that wind-power producers can pay utilities to take the power and still make a profit.

3.  We are at a point that we must deal with severe deficit and debt issues and yet we continue to spend money on a 20 year old technology that is still not economically viable—in fact at higher cost today than in 1994 when the subsidies started.  There have been no savings for moving to production line manufacturing.

4.  Wind power will not replace traditional power generation because as we know, when the wind doesn’t blow, we still need power.  Just ask Chicago, when on July 6, 2012 when their demand peaked, 99.8% of their wind turbines produced no power.  Requiring power companies to maintain traditional power backup that will not be used full-time will add to our electricity costs.

Bottom line, is this the “Right Thing to do?”  In my opinion, no.  In fact Ann Arbor could be a great example for the country to refuse the money and ask that instead it go to reduce our debt.  Isn’t there an old saying that there is “no such thing as a free lunch?”