Texas Windpower: EU Energy, Enron Legacy
Texas and Europe don’t have a lot in common. But when it comes to government support for renewable energy, the Lone Star state has followed the same course as many European nations.
In the late 1990s, while the European Union was urging member nations to adopt targets for the percentage of their energy produced from renewable sources, Texas enacted a renewable portfolio standard (RPS) mandating that the state’s competitive electric providers buy a minimum 2,000 MW of qualifying renewable energy by 2009. The purchase mandate was part of a broad electricity restructuring bill sponsored by Enron Corp., parent of Enron Wind Corporation, a story detailed elsewhere at MasterResource.
The Texas Legislature, with the support of Governor Rick Perry, later increased the RPS to 10,000-MW by 2025. Texas met this target for installed wind capacity in 2010, a full fifteen years ahead of schedule. Subsequent attempts to increase the mandate, and to carve out a solar mandate, have been repulsed by a more free-market legislature.
Almost all of this renewable generating capacity comes from wind, and in particular from industrial wind parks in the rural West Texas. Texas is currently one of the world’s largest producers of wind energy, and home to the largest single wind facility in the world, the 781-MW Roscoe Industrial Wind Park.
In practice, Texas windpower offers much less energy than first appears. Texas’s wind farms are concentrated in the Texas Panhandle, far from the focus of the state’s electricity demand along the I-35 corridor. In addition, Texas wind tends to blow hardest at night and during off-peak (non-summer) months, when there is less overall demand absent air conditioning load.
For these reasons, the Electrical Reliability Council of Texas (ERCOT) estimates that actual net summertime generation for wind power in Texas is only around 8.7 percent of installed capacity. During electricity’s prime time, wind contributes a paltry one percent, according to ERCOT:
Summer generation by fuel type is 64.2 percent natural gas, 26 percent coal, 7 percent nuclear, 1.1 percent wind, and 0.7 percent hydro, 0.1 percent biomass, and 0.8 percent other (includes landfill gas and petroleum coke, and other fuels not specifically categorized, such as diesel).
So, aside from bragging rights, what has building so much wind capacity accomplished? Renewable supports are justified as a way of reducing carbon emissions while investing in a fashionable industry. In addition, however, supporters of these subsidies and mandates claim that they are a good way to create jobs.
But as I point out in my just-published paper, Learning from Others’ Mistakes: What Europe’s Experience with Renewable Mandates and Subsidies Can Teach Texas, government support for renewable energy has proven to be a poor method of creating “green” jobs both in Texas and abroad.
Spain’s Case Study
Consider the case of Spain. In 2007 the Spanish government agreed to binding targets to increase its share of final energy consumption derived from renewable energy to 20% by 2020. To achieve this ambitious target, Spain initiated substantial subsidies for the generation of wind and solar power. Under a pair of royal decrees issued in 2007 and 2008, solar electricity received between €310 and €340 per MWh, while wind electricity received up to €73.20 per MWh for the first 20 years of a plant’s life.
In terms of increasing installed capacity for renewable energy, Spain’s subsidies were a roaring success. By 2008, Spain accounted for half of the world’s new solar-power installations in terms of wattage.
Yet the effect of these subsidies on the job market was less stellar. A 2009 study by researchers at the Universidad Rey Juan Carlos found that creating “green jobs” was incredibly expensive. Between 2000 and 2009, Spain spent €571,138 to create each “green job,” including subsidies of more than €1 million per wind industry job.
The study concluded that for every job created by the subsidy program, 2.2 jobs where destroyed in other industries. This is because paying for subsidies requires siphoning off resources from the wider economy in the form of higher energy prices and taxes. According to the study, each “green” megawatt installed in Spain destroyed on average 5.28 jobs elsewhere in the economy: 8.99 for photovoltaics, 4.27 for wind energy, 5.05 for mini-hydro.
Other Country Studies
Similar studies examining renewable supports in Denmark, Germany, Italy, and the United Kingdom have reached the same conclusion. Itay’s Instituto Bruno Leoni found that “the same amount of capital that creates one job in the green sector would create 6.9 or 4.8 if invested in the industry or the economy in general, respectively.”
A study by Verso Economics on renewables in Scotland and the UK found that “for every job created in the UK in renewable energy, 3.7 jobs are lost.” A 2009 report by the Danish think tank the Center for Politiske Studier (CEPOS) found that in Denmark “a very optimistic ballpark estimate of net real job creation is 10%” of employment in the renewable sector.
And a 2009 paper by German economists Manuel Frondel, Nolan Ritter, Christopher M. Schmidt, and Colin Vance found that the country’s subsidies to renewable energy amounted to $240,000 (€175,000) per worker.
Given these results, it’s not surprising that these countries are beginning to backtrack. Italy, Germany, and the United Kingdom have all cut subsidies for solar and wind power over the last year, and last month Spain’s new center-right government announced that it would “temporarily suspend” all subsidies for new wind and solar generators.
EU-Like Texas Wind: Is A Scaleback Ahead?
Texas is not as far down the path Europe has traveled with respect to renewable energy. Many of the road marks, however, are the same. Along with mandating that utilities produce 10,000 MW of new renewable energy capacity (allotted according to each company’s share of the overall market), the state has set up a Renewable Energy Credit (REC) trading program. Under the program utilities are given one REC for each megawatt-hour of qualified renewable energy generated, which can be traded or sold to other utilities in order for them to meet the RPS requirements.
While not as pricey as some of the European schemes, Renewable Energy Credits for wind energy were estimated to cost around $54 million during 2011, with a cumulative cost of nearly $700 million over the coming decade, all of which will be passed on to consumers through the price of electricity.
Now underway, construction of 2000 miles of transmission lines from wind farms in sparely populated west Texas to major urban areas will cost consumers $7-10 billion, a cost totally socialized across rate-payers under Texas law.
At current prices, the REC system alone is estimated to cost between $26,373 and $43,956 per wind industry job created. And the cost of RECS is dwarfed by the price tag for federal renewable subsidies, which are projected to total $4.61 billion for the period 2011–2020.
Whether Texas will follow Europe in scaling back renewable supports remains to be seen. But the experience of both European nations and Texas itself has shown that supporting renewable energy is not a good mechanism for creating jobs.
Josiah Neeley is an analyst with the Anne and Tobin Armstrong Center on Energy & the Environment at the Texas Public Policy Foundation. He holds a B.A. in Government and Philosophy from the University of Texas, and a J.D. from the Notre Dame Law School.