“Wind, an expensive energy resource, becomes more expensive (uneconomical) when costs are added for an apples-to-apples comparison to conventional generation. With natural gas prices at $4.00/MMBtu, and long-term cheap gas contracts available to anchor new power generation, wind power projects are typically uneconomic on a variety of grounds.”
A study by the National Renewable Energy Laboratory (NREL), the 2011 Cost of Wind Energy Review, estimated the cost of wind-generated electricity at $0.o72/kWh. This estimate is nearly 20 percent lower than the U.S. Department of Energy’s Energy Information Administration (EIA) estimate of about $0.087 per kWh.
But as I argue in a new study for the Institute for Energy Research (IER), Assessing Wind Power Cost Estimates (October 2013), adding wind power to the power grid involves a number of other costs.
Adding in these costs, I came to four major conclusions:
Background
The federal government devotes substantially more financial resources to subsidize the production of wind power than it does to study wind power. Indeed, the Government Accounting Office counted over 80 separate federal programs offering economic support to wind power producers, though the largest program by a wide margin is the Production Tax Credit.
State and local governments offer additional special support, over and beyond what oil, gas, or coal receive.
Disproportionate, sizable government subsidies for wind power—even exceeding the wholesale price of power–raises hard questions concerning costs relative to benefits associated with renewable energy policy. Thus, apples-to-apples comparisons between rival energies is necessary.
Surprisingly given the extent of federal policy support for wind power, little systematic effort has been made to calculate the overall net benefit (or cost) of public policies toward wind. [1] Given the importance of understanding the costs associated with wind power policies, this paper examines and assesses the most significant of the wind power cost estimates produced by the federal government.
Getting to Full-Cost Wind
NREL’s levelized cost of energy (LCOE), assessing both average capital costs and operating costs, are too low. Below, I use NREL’s methods and data for calculating LCOE, with adjustments for reasons described in the paper.
For capital costs, I up NREL’s installed capital cost estimate for wind power to $0.088/kWh (from $0.061/kWh) by:
· Assuming a 33 percent capacity factor for wind power rather than NREL’s assumption of 38 percent yields an estimate of $0.069/kWh rather than $0.061/kWh for installed capital costs.
· Assuming a 10 percent discount rate for evaluating investments instead of NREL’s assumption of 8 percent adds a little more than $0.01/kWh more to the estimated LCOE.
· Assuming a standard depreciation rate for tax purposes instead of NREL’s use of 5-year Modified Accelerated Cost-Recovery System (MACRS), an accelerated depreciation method, raises the cost by about 10 percent.
For operating costs, I increase NREL’s estimate to $0.021/kWh (from $0.011/kWh). A bit of this comes from (again) assuming a 33 percent capacity factor. But most of this increase is derived from the Berkeley Lab Wind Technologies Market Report from which NREL drew data.
Berkeley Lab admitted that its operating cost survey was limited in scope and may undercount costs. Notably, the two wind power projects for which Berkeley Lab has the most complete information showed annual operation costs averaging over $0.021/kWh, which I use.
So, summing $0.088/kWh capital costs and $0.021/kWh operating costs yields a new LCOE for wind power of $0.109/kWh.
My study also notes a number of additional costs associated with wind power: transmission costs, grid integration costs, costs imposed on other generators, and potential environmental costs.
These costs can vary widely given the location of the project, the status of the transmission grid the wind project connects to, and other factors. Where available the report describes per MWh cost (1,000 kWh) estimates for some of these factors, but no specific average cost is endorsed given the diverse range possible.
Summary
Wind, an expensive energy resource, becomes more expensive (uneconomical) when costs are added for an apples-to-apples comparison to conventional generation. With natural gas prices at $4.00/MMBtu, and long-term cheap gas available to anchor new power generation, wind power projects are typically uneconomic on a variety of grounds.
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[1] For one exception, see George Taylor and Tom Tanton, The Hidden Costs of Wind Energy (American Tradition Institute: 2012). Their estimate of $0.15/kWh is not evaluated here.
For a thorough debunking of the false claims in this fossil fuel industry attack piece, please see:
http://aweablog.org/blog/post/fact-check-fossilfunded-think-tank-strikes-out-on-cost-of-wind
Michael Goggin,
American Wind Energy Association
Michael:
Michael Giberson will respond to your rebuttal–so readers stay tuned (and even wait until the response from which AWEA can respond).
But beyond the battle of ‘what does it really cost’–and Giberson’s estimate is well below that of the study by the American Tradition Institute–wind power fails the market test because it needs mandates and wildly high, preferential tax measures to even have buyers.
The bottom line: your energy is based on coercion; rival energies naturally preferred by consumers are based on mutually determined value. Government has legalized windpower thuggery, but that does not make it right in a free society.
The ATI attack was debunked here:
http://aweablog.org/blog/post/fact-check-american-tradition-institutes-taylor-and-tanton-blowing-smoke-on-wind-incentive
Regarding energy policies, as noted in my post (with links in the original):
According to the Congressional Research Service, “For more than half a century, federal energy tax policy focused almost exclusively on increasing domestic oil and gas reserves and production.” A report by DBL Investors also found that in “inflation-adjusted dollars, nuclear spending averaged $3.3 billion over the first 15 years of subsidy life, and O&G subsidies averaged $1.8 billion, while renewables averaged less than $0.4 billion.” Even by the Nuclear Energy Institute’s own count, fossil and nuclear subsidies are many times larger than the total amount given to all renewables over the last 60 years.
Yes, the nuclear industry is a creature of government–just like the wind power industry is. Both could have never been part of the energy mix to the advantage of ratepayers and taxpayers.
Oil, gas, and coal were firmly established decades before government R&D and tax breaks were in play. Gov’t subsidies to fossil fuels was simply more money in the pockets of industry, but they were not necessary for the industry itself.
Punitive government regulation against oil, gas, and coal has made the subsidy NEGATIVE in the wind-boom period. Eliminating mandates and subsidies for all energies will destroy windpower, on-grid solar, and ethanol. Oil, gas, and coal will pick up market share. I’d love to hear your argument that wind will survive without the PTC, RECs, and state renewable mandates.
CRE says a lot of things that are not dreamt of in your philosophy Mr. Goggin:
“MISO, PJM, and ERCOT each have different market designs and different means to address resource adequacy and reserve margin issues. Although fundamentally very different, both MISO and PJM operate a capacity market that is designed to provide a source of income to generators that may not sell enough electricity to be economically viable, but are necessary to RTOs in order to satisfy target reserve margins and ensure system reliability. As more variable energy sources are added to an RTO system, the premium for reserve capacity could rise. If this occurs, generators providing capacity to meet resource adequacy requirements may see more revenue coming from capacity payments and less revenue from energy sales. As a result, the revenue profile for power generators may change. ”
What percentage of those increased capacity payments (for inactivity) should be apportioned to wind’s LCOE?
Further:
“RTOs are currently implementing various initiatives (i.e.,
dispatchable resource programs, renewable energy transmission projects) to address the variable generation characteristics of wind power. Furthermore, each RTO market is designed to provide the economic signals necessary to stimulate capacity additions in order to ensure resource adequacy and maintain capacity margins. However, should wind power generation continue to grow, it is uncertain if current RTO market designs will provide the signals needed to encourage specific types of generation capacity (e.g., operating and spinning reserves) necessary to manage the variable nature of wind power.”
Who should pay, Michael?
I suspect this old adage will apply: “A man will never never know the correct answer to a question when his job depends on not knowing the answer to that question.”
Kevon Martis
Director
http://www.iiccusa.org
“Protecting people from AWEA wind-speak since 2011”!
Or as we say out here in the country: “He who pays the fiddler get’s to pick the tune”.
For a number of years I have assisted power sector clients with risk assessments of alternative portfolios of generation and import investments. In an optimization model I developed to compare alternative portfolios for cost, risk, return, etc., wind is never chosen once the ancillary services costs of wind are assigned to that generation resource – e.g., “firming” up wind with mirroring and shadowing services, additional transmission. (never say never – ed. wind has been chosen to a limited degree in some isolated/island systems that would otherwise use fuel oil in open cycle turbines or steam turbine plants).
Least cost and least risk generation depends on local fuel cost and availability as well as market size. Gas and coal are the usual winners, along with storage hydro, when available. Wind? Hasn’t happened yet.
[…] the MasterResource blog, “$0.11/kWh: Why Wind Is More Expensive than Advertised,” a quick summary of my report for the Institute for Energy Research, “Assessing Wind […]
40 years ago, the electric power industry lost the guarantee to cheap energy, which was what enable the development of least costs expansion plans. The uncertainty on fuel prices from the on have made the assumptions obsolete very quickly.
Business as usual average calculations, such as the LCOE, “firming up” only make sense in an industry based on a flawed architecture.
It has been know since 1973 that electricity planning is a wicked problem, from the social viewpoint. There no satisfactory solutions available from planners. But those problems get hidden in most jurisdictions, except in places with economic crisis, like Spain and Dominican Republic.
To address those wicked (systemic) problems, instead of planning, what is needed is go the true institutional markets, with a correctly restructure electric power industry, like the one mentioned in the post Great electricity service ( http://bit.ly/078GMH ).
Instead of anticipating what the future will be, the electric power industry is opened to recurring business model innovations, which let investors compete with generation on a local basis. All of this changes the meaning of, for example, long-term cheap gas contracts.
The most important factor to understand in this discussion is that the levelized cost of wind is NOT comparable to that of reliable, dispatchable generation plants. The EIA makes this quite clear at http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf. So simple calculations of levelized wind costs are meaningless.
To make proper comparisons, the additional costs of the significant resources that must be deployed to integrate wind’s persistent, volatile electricity production on a very short term basis (minutes) and respond to wind’s unreliability on a long term basis (hours and days) must be included. As well the significant additions to the grid to service wind only are considerable, starting with the extensive networks to gather the highly dispersed and remote wind plant sites, to transmit the electricity produced over long distances to demand centres and additions to the distribution networks to manage demand as part of the wind integration requirements must also be added.
Remember too, the collection and transmission requirements will need to be built to withstand the occasional very high production experienced by wind plants – an overbuild of three to four times the average annualized production.
Finally the realistic expected plant life makes a substantial difference in comparing different types of generation plants. In its calculations the EIA assumes the same financing period for all plants – 30 years. Wind plants will have to be replaced at least once in this period. So for starters factor up any costs arrived at for longer wind plant lifetimes than 15 years(and double the amount for assuming 30 years).
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For a much more complete discussion of wind costs see my multi-part series starting at http://www.masterresource.org/2012/09/wind-consequences-i/.
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