A Free-Market Energy Blog

Texas Wind Power (CREZ) Line Busts Its Budget (Blame Perry, not Obama)

By Kenneth Artz -- November 10, 2011

[Ed. note: Previous posts at MasterResource have documented the landowner and budgetary problems of the Competitive Renewable Energy Zone (CREZ) transmission line.]

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.

Cost Gaming

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.

Internet Info:

“CREZ Progress Report No. 4,” July 2011, http://www.texascrezprojects.com/systems/file_download.aspx?pg=339&ver=6


  1. john  

    Texas is not the only region where extensive transmission lines are being built. Weather also plays a very important role in these losses and thought I would share this with everyone.

    AC Transmission Line Losses



    According to the Department of Energy, California lost about 19.7 x 109 kWh of electrical energy through transmission/distribution in 2008. [1] This amount of energy loss was equal to 6.8% of total amount of electricity used in the state throughout that year. At the 2008 average retail price of $0.1248/kWh, this amounts to a loss of about $2.4B worth of electricity in California, and a $24B loss nationally.


  2. john  

    My last post touched a bit on the subject of corona in the link. Here is what it looks like using special cameras.


    At times it occurs when lines are overloaded a bit but as a rule improperly fastened attachments (splices, drops, corona rings etc), and defects in the conductor cable, kinks, dirt in the strands, “bird caged” strands (unwound strands) and dirty/cracked/defective insulators are a primary cause. This can lead to faults.


    Reactor and other transformers also are affected by corona. It is prudent to sample and test the oil or other insulating fluids for the presence of free hydrogen (also metals in oil etc) caused by corona breaking down the fluid. In other cases the Bushing seals, explosion ports etc. may be corrupt and water migrates inside. In any case the results can be catastrophic as seen here.



  3. Power Engineer  

    Texas wind transmission costs are small compared to studies in New England where transmission for 12GW of wind (24% of energy) is estimated to cost $17B or 6.6 cents per kWh or twice the cost of the natural gas saved. $17B is a midrange estimate with cost estimates going as high as $25B. This is in addition to the $45B for the wind turbines. Total cost is 8 times the cost of the natural gas saved.


  4. john  

    @Power Engineer, Thanks for the info….does this factor in all the new transmission lines and substations currently under construction in Maine, New Hampshire, Vermont and Massachusetts? Also, if you don’t mind could you provide any links to the figures you have.

    If they do include the offshore wind facilities please let me know. Thanks.


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  6. Jay Alt  

    The lines were built because low-cost wind power made the investment attractive, as compared to building coal plants. Cost studies by ERCOT which projected the savings would pay off the investment in 2 years guided the decision by the Public Utility Commission. It looks like it might take 3 years instead. Big deal


  7. Bay Alt  

    @Jay Alt,

    Sure, trust the wolves to guard the henhouse. I’m sure it’ll be ok….

    (1) wind energy is not cheap. Coal is still the cheapest. (if you do not know this, there is no helping you)
    (2) Well if ercot said…. I have a bridge you might want to take a look at, give ya a good deal…
    (3) and by pay off you mean soak the consumers for it, right? You’re right… Hey I’m just curious since ur soooo sm@rt an all, you ever seen energy prices go down significantly? I can only recall them rising….

    The nuclear guys seem to think that coal costs about  2.7 cents per kWh to produce….. Compared to wind…. At 8 cents… Hmmm if my energy bills are already high…. I wonder what will happen when I start using a higher costing method of production and tack on the costs of transmitting it too… Thats a toughy….



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