The cost of building transmission for expensive wind power in Texas is coming in nearly 40 percent higher than initially promised. Instead of $4.9 billion, as estimated in 2008, the transmission lines are now expected to cost $6.8 billion, according to a report prepared by the RS&H infrastructure consulting firm for the Texas Public Utility Commission. This amounts to approximately $800 per household in the state, or at least $5 per month per ratepayer.
The report states several factors caused the initial underestimate of transmission line construction costs. For example, the initial estimate assumed transmission lines would be built in direct, straight lines from point to point. However, the new report notes transmission lines must often follow roads, fences, terrain features, or property lines instead of direct lines between two connecting points.
The initial cost estimates also failed to account for inflation and financing costs on loans to build the transmission lines.
The report warns the final price tag could rise still higher by the time the project reaches its estimated December 2013 completion date.
More Intervention; Good Money after Bad
The $800 per-household expenditure is merely the cost of building the transmission lines. Wind power is more expensive to produce than conventional power sources, so Texas consumers will also pay electricity premiums every year.
“This is the kind of situation that only happens when government mandates a technology that is not very useful and it’s too expensive for the market,” said Sterling Burnett, a senior fellow with the Dallas-based National Center for Policy Analysis.
Wind power can’t compete, so government rushed in to promote it. But government did not properly account for the fact that that the wind turbines will be built far away from where demand was. It’s like a nightmare version of Field of Dreams. Wind boosters built their turbines and counted on the fact that legislators would not let them be built in vain—sort of: If we build it, the wires will come – at other people’s expense.
It was typical government intervention where one mandate creates a problem that requires another mandate to address. “By requiring a set amount of so-called green energy to be purchased, the Texas government bet big on wind power, ostensibly the cheapest of the so-called green energy sources,” Burnett adds. “But did it occur to anyone in government that you’d need a whole new infrastructure to deliver the new energy?”
Inefficient Transmission, Not Only Inefficient Generation
Because the wind farms are being built in remote areas, much of the power will be lost in the course of transmitting it to distant urban areas. This is not the case with a coal-fired power plant that can be built relatively close to an urban center, or a gas-fired plant which can be built even closer to the end users.
As a result of a stringent state mandate (the Enron provision in Texas’s 1999 electricity restructuring law) on top of federal subsidies, Texas now leads the nation in production of wind power. States Bill Peacock, vice president of research for the Center for Economic Freedom at the Texas Public Policy Foundation:
Texas was definitely in a unique position. Without the subsidies our wind power capacity couldn’t have grown so fast. Despite the high cost of the transmission lines, with the federal subsidies the marginal cost of wind power is essentially zero, which gives providers the ability to bid negative into the market and still make a marginal profit. As a result, the cost of electricity has gone up but the price to produce it has gone down,” explained Peacock.
What is the opportunity cost, the foregone alternative, of the multi-billion-dollar Texas investment in windpower? Lower electric rates past, present, and future is one answer. Or, as Peacock surmised:
There’s no question Texans would be paying less for energy and there would be more capacity if the state had spent the money instead on nuclear, coal-fired, or natural gas power plants. The main problem has been the federal subsidies. Without them we wouldn’t be the leading generator of wind power. Also, without the federal subsidies no one would be building the transmission lines, because no one would be able to make a profit on wind power.
Rent-seeking political capitalists … special-interest government. More government intervention addressing the problems created by prior intervention. It’s all there with the government-created Texas windpower boom.
Kenneth Artz writes for the Heartland Institute based in Dallas, Texas. This piece originally appeared in the November issue of Energy & Climate News.
“CREZ Progress Report No. 4,” July 2011, http://www.texascrezprojects.com/systems/file_download.aspx?pg=339&ver=6