Friday, April 22, 2011

Economic Nonsense

While listening to the radio yesterday, I heard that the local city bus corporation is installing wind turbines at its administrative HQ. From the story:
A $2.18 million federal grant to the Greater Lafayette Public Transportation Corp., which does business as CityBus, is funding the project. The money is part of a federal program aimed at reducing emissions from public transit providers.

Once fully operational, Sennett expects the turbines will cut electrical costs by $30,000 to $40,000 per year.

In addition, up to $250,000 in revenue could come from selling tax credits associated with the project, Sennett said.
According to the local NPR affiliate, the money is some form of federal stimulus funds. Let us assume that these numbers are correct.
  1. Under the most optimistic of all possible assumptions: the turbines save $40K per year, and the $250K is realized immediately upon completion (essentially lowering the overall investment to $1.93 million). The annual return on investment is 2.07%.
  2. Under a more realistic set of assumptions: the $250K is meaningless, as selling tax credits is not a truly value-producing activity; the power generated saves $30K per year. The annual return on investment is 1.38%.
You can get better rates of return off a 5-year CD at the local bank. Add in the fact that these calculations assume that (a) the turbines require no maintenance, and (b) last forever, and you begin to see how idiotic this is. If one factored in capital depreciation (as the turbines deteriorate over time just like a car) it would become even clearer that this is an asinine endeavor. This is what our tax money is paying for? I want a refund.


At 4/22/2011 8:27 AM, Blogger SB7 said...

What really bugs me is that no one who reported or edited that story bothered to do any of these simple calculations themselves. They just take take figures as fed to them and spit them right back out at readers.

The closest thing to actual reporting is relaying some quotes by administrators about how excited they are about this project. Really? People excited by being given things they don't have to pay for? Shocking.

At 4/23/2011 1:12 PM, Blogger Randomscrub said...

Agreed. And people wonder why nobody trusts the media? It's because in many cases the media doesn't bother to do more than act as a press-release relay mechanism.


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