Heritage Foundation Windpower Study: Response to Center for American Progress
Building on the misconception that renewable energy is cheap, some legislators and activists propose mandating that minimum fractions of our electric supply come from designated renewables. Wind and solar are at the top of this list. Al Gore wants 100 percent renewables in less than a decade; others propose less ambitious targets.
The problem is that renewables are expensive, not to mention unreliable and environmentally questionable. Mandates would only force consumers to pay ever higher electric rates as this minimum in an renewable electricity standard (RES) grows year by year.
The Center for Data Analysis at the Heritage Foundation recently analyzed the economic impact of an RES, such as proposed in federal legislation. We found that starting with a 3 percent mandate in 2012, and ramping it up by 1.5 percent each year, will by 2035:
- Reduce national income (GDP) by over $5 trillion even after adjusting for inflation, which translates to an average annual loss of $2,400 for a family of four.
- Destroy a million jobs.
- Raise electric rates by 35 to 60 percent (after adjusting for inflation).
These impacts are driven by the fact that the cheapest renewable electricity source costs twice as much per megawatt-hour as the most economical conventional sources.
Climate Progress Claims: A Refutation
Facing this truth is difficult for wind and solar advocates. So, not too surprisingly, a policy analyst at the Center for American Progress tried to discredit the Heritage analysis. This criticism is way wide of the mark. Below are the CAP claims and our rebuttal.
Heritage assumes that 100% of the RES targets would be met by renewable energy. But, RES proposals in both ACES and the American Clean Energy Leadership Act (ACELA) call for some of the target to be met with energy efficiency. Data from Duke and Progress Energy indicates that the levelized cost of energy for energy efficiency can be as low as 3 cents per kwh. (I suspect that even this number is too high.) This is less than half the cost of conventional coal power and means that the RES can actually save consumers money.
We look at a generic RES. Equating no electricity to renewable electricity as is implied by counting conservation as a renewable, simply defines down “renewable.” Further, the availability of conservation at 3 cents per kWh is laughable. This implies that people are actively avoiding saving money under the current system—if you can cut a kWh for 3 cents, you skip having to pay 11 cents for the electricity. Who really believes that enacting an RES will uncover all this cheap conservation?
Heritage simply takes today’s EIA estimates of how much new electricity from various sources will cost and assumes it will stay constant. This is wrong. Renewable energy resources have become much less expensive in recent years (for instance, here’s some information on solar). Costs will continue to decrease as more renewables are deployed.
We use the EIA’s projected levelized costs for renewables in 2016. The EIA notes that there may be some improvements in wind technology over the years, but it will be applied to worse and worse wind resources as the best wind spots are used first. The net effect is not much change. Solar is more than double the cost of onshore wind. So, the cost estimates would only increase by using a combination of wind and solar. The “costs will come down after we mandate renewables” is a decades-old argument. The evidence to date indicates renewables will remain uncompetitive for quite some time (hence the need for mandates).
Heritage doesn’t even truly model electricity cost differences under realistic scenarios. Instead, they appear to have modeled an absurd scenario comparing the cost of electricity from dirty coal to the cost of electricity from a diverse resource supply. Thankfully, most consumers get electricity from a portfolio of generating technologies, which provides for a more dependable, secure, and clean system. If Heritage wants to find out what a RES will cost consumers, they should compare electricity costs under an RES to electricity costs without an RES, not to electricity costs for a mythical consumer who gets all of his/her power from dirty coal.
We look at the difference between the cost of the renewable energy that is mandated and the energy that it is likely to replace. Yes we get electricity from a host of sources but an RES makes no sense if it cuts power from nuclear, hydro, or existing renewables. Plus, we know that wind or solar won’t cut natural gas combustion turbine use. So using a portfolio cost as a measure of what we will be shutting down makes no sense. The EIA costs for coal and natural gas combined cycle were nearly identical, so our analysis would be little different if we looked at swapping wind for a combination of coal and natural gas combined cycle.
Reed Hundt’s Coalition for Green Capital claims that wind is only profitable at cost an order of magnitude higher than that which we used. From an E&E News story on May 10, 2010:
Without lower-cost financing provided by a clean energy bank, only projects in the strongest wind-resource regions like the Great Plains meet investors’ minimum financial goals — and even these projects are not competitive unless they can charge a relatively high price of 70 cents per kilowatt-hour or more. The cheaper financing from a clean energy bank makes wind power projects fundable in poorer wind-resource areas, too, at as little as 55 cents a kilowatt-hour in wind power prices, the coalition said.
Seventy cents per kWh is $700 per MWh–and that’s at the gate to the wind farm and without backup. We used $177 after adjusting for backup and transmission premiums. If anything it looks like Heritage underestimated the costs of an RES.
Maybe CAP knows all sorts of stuff about cheap renewables. But when it comes to putting their own money down (as opposed to the taxpayers’ or ratepayers’ money the advocates want to use), lenders think it will cost $700/MWh or more.