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Heritage Foundation Windpower Study: Response to Center for American Progress

[David Kruetzer is research fellow in energy economics and climate change at the Heritage Foundation in Washington, D.C.. This is his first post at MasterResource.]

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.

CAP:

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.

Rebuttal:

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?

CAP:

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.

Rebuttal:

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).

CAP:

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.

Rebuttal:

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.

Moreover:

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.

13 comments

1 John Droz { 05.15.10 at 5:56 am }

David has hit the mark with is good post here. I also appreciated his rebuttal of the greenwashing silliness.

As straightforward as this article is, though, I believe that it still understates the problem.

Wind energy IS an expensive, low density, unreliable, environmentally unfriendly source of electricity — but it’s actually worse than that.

The main problem with focusing on economics is that the self-serving will counter with some specious claim that: 1) fossil fuels are reallly more expensive than they appear to be, or 2) the extra expense is worth it considering that we are saving the planet, or 3) these high costs will come down eventually, etc. etc.

The real question is: if unsubsidized wind produced electricity at 6¢/KWH, would it then be a good thing to replace our conventional sources with?

I think not.

See http://spectator.org/archives/2010/05/14/comparing-apples-and-orangutan for an analogy where I try to explain this bigger point.

2 Jon Boone { 05.15.10 at 8:11 am }

John Droz is right on target here. Economic analyses comparing wind with conventional generation that do not ADD: the costs of wind balancing generation; the costs of increased inefficiencies induced on conventional generators that must be hitched up for wind integration; the costs of additional conventional generation that must be brought on board as wind penetration increases; and the costs of additional transmission lines/voltage regulation that must attend wind integration–are not factoring in all the variables for fair comparison.

Wind cannot exist on any modern grid by itself. It must be considered a minor part of a much larger machine complex–and the total cost of that complex is what economists should use when comparing wind with other forms of generation that provide genuine capacity and modern power performance.

And Master Resource should hold any article that discusses this issue to that standard.

3 David Kreutzer { 05.16.10 at 12:03 pm }

Mr. Boone, please follow the link to our study. We did adjust for additional backup and additional transmission costs.

4 W.E. Heasley { 05.16.10 at 9:00 pm }

Find the argument with the Center for American Progress interesting.

Lets see, the anointed/intelligentsia at CAP try to argue a “notion” of the way things ought to be through verbal virtuosity. The problem becomes that “notions” are not based upon empirical evidence. The other problem with notions is that the notion generally is an attempt to paint the world in the anointed/intelligentsia’s own self image.

Obviously Heritage comes from the tragic/empirical view. That is, a view where arguments are based on empirical evidence.

The field of play then becomes “the way things ought to be” vs. “empirical evidence”. Suddenly CAP must rely on empirical evidence to support a notion. Ops! Then the normal CAP strategy is deployed of arguments with no arguments.

David Kreutzer, please keep up the good work!

5 Jon Boone { 05.16.10 at 9:32 pm }

Thanks, David. Here’s the problem I continue to have with such analysis:

1. Since supply and demand must be kept in kept in continuous balance at all times, and
2. since a wind project is continually fluctuating between zero and its rated capacity, producing energy (when it does) as a function of the cube of wind velocity, and
3. since the national capacity factor of wind projects is about 28%–

any grid must entangle a wind project at all times with reliable, highly responsive capacity that is around 72% of its rated capacity. This entanglement must be proactive and highly dynamic. It therefore cannot be considered merely “backup.” You do NOT factor this volume of activity into your analysis, either in function or in cost.

What you appear to be doing is accounting for some portion of a grid’s regulatory reserves that is called into play when there are sudden, very wide swings of wind volatility–this in order to secure the grid. Any grid must be at the ready to handle this kind of unpredictable circumstance, which of course can occur when any generator fails suddenly. But wind volatility adds to this situation, increasing the need for vigilance. As more wind penetrates the system, threatening grid security, more reliable capacity must be added as well, at up to 90% of the installed wind.

I don’t think you have properly accounted for either of these situations.

Moreover, your figures for additional transmission and system regulation seem far from adequate, since many of the new transmission lines would be virtually dedicated to wind, to avoid scheduling problems.

As I said in my earlier post here, wind is only a minor ingredient in a much larger machine mix. It’s unpredictable variability intensifies the problem of demand flux, destabilizing the supply/demand match from the supply side. Integrating such a destabilizing influence requires everyone and everything around it work much harder just to stand still. We tolerate demand flux because, having electricity on whim has been a key factor in promoting productivity and the general welfare .

Saying that onshore wind is a better “bargain” than offshore wind is much like saying heart disease is better than cancer. In each case, both are dysfunctional. Wind in any form is a problematic tail-wagging–the dog technology, made possible only because of the politicalization of the electricity sector.

Just because politicians insist on wind is not a good reason for Heritage Foundation scholars to make it seem functional–or affordable.

6 Charles { 05.17.10 at 12:02 am }

I must agree with Jon Boone, having any wind generating capacity does mean that an equivalent generating capacity of nearly 100% of the rated capacity of the wind farm must be held in Spinning Reserve, waiting to be deployed at a moments notice.

It is this fact which means that there is no concomitant reduction in burning of fossil fuels to accommodate the presence of the wind farm, that reveals wind power generation to be not only an economic disaster, but an environmental and social one as well.

7 TomC { 05.17.10 at 2:18 pm }

Has Heritage looked into the economics of on-site use of wind energy? Seems to me a lot of the problems of wind would diminish, if the energy could be used on site in some manner that either stores energy (producing portable, energy dense fuel) or displaces energy use elsewhere (fertilizer production, mineral refining, LOX production for “clean coal”, etc). Ideally, processes that do not require constant energy, where production could vary with energy production.

IF some such could be found practical, offering those up as an alternative might be a far more effective way to fight wind as “grid power”, i.e. by breaking down unthinking resistance to accepting that wind for grid power is a bad idea. It could provide alternative financial incentives for wind power developers. It could offer a way for wind to achieve “green” goals without destabilizing the power grid. Wind towers wouldn’t need to be near people.

I’m particularly curious about the possibility of directly using a wind tower’s mechanical energy to power compressors for gas liquefaction, without the added losses of first converting to electricity. Production of liquid oxygen for use in a “clean coal” industry would not eliminate “dark green” opposition to coal, but would provide a way for moderates to compromise on “greener coal”, and could gain a powerful ally for this alternative approach to wind power.

8 Jon Boone { 05.17.10 at 10:20 pm }

“IF some such could be found practical, offering those up as an alternative might be a far more effective way to fight wind as “grid power”, i.e. by breaking down unthinking resistance to accepting that wind for grid power is a bad idea.”

Hmmm. I and other on this forum have worked hard to provide thoughtful, well considered reasons–in the form of the nature of the grid and the existential nature of wind technology–showing why wind is bad for the grid, for consumers, and for better energy policy. And have used reason to resist this incredibly bizarre idea, since is is inimical to modern power production.

Using wind for off grid purposes is hardly a new idea. One might ask why the Dutch stopped using windmills to reclaim the land from the sea 200 years ago, with the advent of the steam engine. Or why freighters aren’t equipped with sails.

I would have no objection to experimentation on behalf of any outlandish idea, or even “stimulus funds” being used to conduct research. For those who want to see some truly breathtaking Rube Goldberg ideas about tinkering with wind, do read The Inventor’s Dilemma by David Owen, in the May 17 issue of The New Yorker.

However, before the fruits of such research get unleashed over the countryside, let’s make damned sure they can deliver what is promised.

9 TomC { 05.18.10 at 11:21 pm }

Jon – Reasonable answers generally don’t “sell” people who’ve made up their minds because they have an agenda – whether it be profit or saving the world. If you provide a way that lets them satisfy their objectives, WHILE explaining why their initial idea won’t work well, they’re more likely to accept it.

I.e. you can’t just tell a “green” advocate “sorry, you can’t achieve your goals this way – just doesn’t make sense”, and expect no resistance, reasonable as that might seem to you. They will assume that since you appear to be opposing them, you oppose their underlying agenda (e.g. that you must be profiting from green house gas production), and that your arguments are therefore automatically suspect and can be rejected on that basis.

BTW – the answer to both of your questions about wind power lies primarily in the need for reliable “on demand” power. My proposal was to find applications where variable power is acceptable.

10 Jon Boone { 05.19.10 at 9:09 am }

TomC:
I understood that your intention was to find applications for variable power, an idea I’ve wrestled with for some time. Perhaps improvements in solar technology will one day provide economically serviceable uses at local levels for functions like communications and traffic control, in addition to residential and commercial uses. I welcome research and subsidy in this area. However, given the physics involved, I can’t conceive that industrial scale solar can succeed. More than this, I don’t think it ought to succeed, given its potential to wreak havoc on the environment.

Our demands for modern power performance, where work gets done very quickly in the time frame we dictate, make unpredictable variable power, particularly with wind, more than problematic. Why would anyone who is interested in economic efficiency and productivity consider utility scale uses for hand drills and screw drivers, which are at least controllable? Why would anyone seriously consider hitching up a fleet of soap box derby vehicles to transport heavy equipment across the country? And why would any commercial operation want to use wind to grind grain and pump water?

The easy answer: no one would even consider such a proposition, at least as a rational idea. So why putz around with the concept in the production of electricity, where the notion of having controlled, precision power is so essential for the reliability, affordability, and security we demand?

11 Retired Utility Worker { 05.19.10 at 9:30 pm }

Someone needs to talk to the local electric utility dispatcher. When there is a need for electricity from surrounding utilities they sell some of their temporarily excess capacity. Their economic stability depends upon selling this excess capacity – even if it is only for a few hours per day. When you now throw a wind turbine in the mix, the dispatcher can no longer sell a portion of their temporarily excess capacity. That means that they cannot sell that portion and they lose money. Typically this power is sold at the price of the most costly generator online and many times at several multiples of that cost. You as a rate payer make up this loss in increased electric bills. In an area where 20% of the utilities power is mandated to be from RES, then they could have to hold back as much as 20% of their temporarily “excess” power for when the wind is not blowing. The amount will depend upon how spread out and diverse the RES power is. This would be equivalent to mandating that airlines must not allow reservations on 20% of their seats and to hold them for last minute “walkup” customers.

Then there is the problem of the havoc that losing a generator causes to a local power grid. Do you remember the two New York blackouts and the Ohio Edison blackout? Oh yes, the SMART grid is going to fix that – and I have a bridge I can sell you.

12 Jon Boone { 05.20.10 at 10:34 am }

Great comments, Retired Utility Worker, and useful for more broadly understanding why wind technology is so dysfunctional at virtually every level of consideration. Thanks.

13 The American Spectator : What's Wind Got to Do With It? { 09.13.12 at 5:00 am }

[...] As Kent Hawkins of MasterResource.com noted, "There are not only more emissions with [Renewable Energy Standards] than without them, but also there is duplicate capacity installed (wind) at significantly higher costs, which adds notably to the costs of electricity." [...]

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