This month, two subcommittees of the House of Representatives Science, Space, and Technology Committee [1] held a joint hearing, “Impact of Tax Policies on the Commercial Application of Renewable Energy Technology.”
I was one of nine witnesses testifying. In addition to myself, the let-the-market-decide witnesses were Dr. Benjamin Zycher, Visiting Scholar, American Enterprise Institute, Tax and Other Subsidies for Renewable Energy Should Be Abandoned; and Margo Thorning, Senior Vice President and Chief Economist, American Council for Capital Formation (testimony here).
The subcommittee Republicans were prepared, well informed, and interested in drawing out the facts. The Democrats, on the defensive, complained that the hearing was happening, argued the subcommittees lacked the jurisdiction to hold the hearing, and claimed that renewables were being short-changed compared to oil and gas.
A summary of my testimony (full version here) follows:
Background and Purpose
Energy policy in the United States calls for the aggressive deployment of renewable generation which has led to an explosion of expensive renewable resources that are variable, operating largely off-peak, off-season and are located in rural areas with limited transmission.
By year-end 2011, nearly 47,000 megawatts (MW) of on-shore wind was installed in the United States, representing less than 3% of total electricity generation in the country. Based on the interconnection queues of each grid region in the U.S., industrial wind is the dominant renewable resource with more than 90% of the proposed generating capacity of all renewable energy projects in the United States.
My testimony looks at recent trends in the U.S wind industry including the impacts and costs of advancing significant wind resources.
The Wind Mandate: 20% by 2030
In 2008, the Department of Energy (DOE) published 20% Wind Power by 2030 which evaluated the feasibility of using wind to produce twenty-percent of the nation’s electricity. A 20% scenario means transforming the mid-section of the country as well as our coastal waters into massive wind generating facilities connected together by thousands of miles of new 765 kilovolt transmission lines.
The American Wind Energy Association insists the industry is on track to meet the DOE’s goal but getting to a 20% scenario is neither realistic nor wise. The report’s authors failed to accurately characterize the purpose and scale of such development, the technology challenges and staggering financial costs, and the fundamental changes to electricity infrastructure necessary to achieve the hoped-for 2030 levels.
According to the DOE, “wind power cannot replace our capacity resources” — those generators we rely on day-to-day and hour-by-hour to meet our energy needs. DOE maintains that if wind has some capacity value, that should be viewed as “a bonus, but not a necessity.”
For the authors of the study, satisfying the 20% wind goal is entirely independent of our need for reliable power.
So why build wind at all? Wind is being installed to generate low-emissions energy. Any opportunity beyond that is, as DOE correctly states, “a bonus, but not a necessity.”
This fact is validated by the ISO-New England’s wind integration study which concluded that New England could achieve 20% wind but doing so would require the existing fleet of power plants in the region to remain online AND that any new capacity resources proposed to be built also be brought online.
Building wind in the United States is not about meeting our energy needs. While wind may displace fossil fuel, it does not and cannot replace it.
Federal Subsidies Programs: PTC and Section 1603
The wind industry has complained for over ten years that each time the production tax credit was allowed to expire new wind installations stalled. And here we are again.
But attributing wind market activity to the PTC is overly simplistic and fails to consider other, more significant factors that impact growth, like energy prices and the availability of state mandates. In fact, these factors are likely the primary impetus for wind growth (and decline), in the United States.
The PTC is an overly generous, highly inefficient policy. At 2.2 cents per kilowatt hour, this open-ended subsidy has a pre-tax value of about 3.7 cents per kilowatt hour, more that the wholesale price of electricity in most areas of the country.
Section 1603 is another story altogether. There is a perception that the 30% case grants are monetarily equivalent to the PTC. This is not true.
Aside from the obvious intrinsic value of cash in hand versus tax credits earned over a period of ten years, I was prompted to look further into the numbers themselves to test the claim of equivalence.
I looked at five operating onshore wind energy facilities and five projects that were approved, but not yet built including two offshore applications. In all cases, the cash grants exceeded the anticipate PTC by a significant amount.
Unlike the PTC, Section 1603 is not performance-based. If a project’s capacity factor is marginal, the public still grants the case. With upfront cash grants, developers have little incentive to negotiate lower prices with suppliers. In fact, the more expensive a project is to construction, the better for everyone involved.
Wind Energy Jobs Claims
Wind energy is not a jobs producer and the proof is in the numbers. In 2008, the wind industry claimed 85,000 direct and indirect jobs. By 2010, after ARRA and after Section 1603, the industry reported 10,000 fewer jobs. But that’s just part of the story.
In 2010, the State of Vermont published the results of its own study to evaluate the consequences of adding just 50 megawatts of renewable energy at prices that were higher than market-based alternatives.
The analysis found the Feed in Tariff program would increase Vermont capital investment and create jobs during its 26-year life cycle, however, the net gain in employment was found to be far less than conventionally thought. Following an initial increase in temporary construction-related jobs, long term employment would average thirteen full time jobs per year, including both direct and indirect employment. But other sectors would suffer long term net job losses.
But job transfer was not the only finding reported from the study. The model also showed that above-market energy costs due to higher electricity prices would have the deleterious effects of “reshuffling consumer spending and increasing the cost of production for Vermont businesses” and that “increased costs for households and employers would reduce the positive employment impacts of renewable energy capital investment and the annual repair and maintenance activities”.
Hidden Subsidies for Wind
Independent of the PTC and Section 1603, millions of public dollars have been spent supporting wind power development in the U.S. One example is the work undertaken by DOE, FAA and the DOD Clearinghouse to mitigate for the impacts of large-scale wind turbines on military and navigational radar. By 2008, nearly 40% of our long-range radar systems were already compromised by wind turbines. We’ve doubled our wind capacity since then but the problem of radar interference persists.
My testimony cites two locations where unacceptable compromises were made or planned. One is Travis Air Force Base in California; the other is the Navy Air Station at Kingsville, Texas where fifty percent of our Navy aviators are trained.
Today, the United States spends millions of dollars a year to improve and maintain the most sophisticated radar systems in the world while additional millions are allocated for the cross-purpose of degrading our radar abilities in order to avoid turbine interference. It is crucial that Congress investigate this issue and more fully ascertain the costs in dollars and reduced radar resolution occurring due to wind development. Such hidden subsidies are easily kept from public view while placing our national security and military readiness at risk.
Conclusion
The true impact of a national renewable vision based on wind is in the public cost, both in dollars and in the impacts wrought by transforming our open spaces, on- and offshore into massive industrial power plants with associated transmission and other infrastructure. Wind proponents advocate for a national energy policy that mandates renewable energy, but public policy requires credible analysis with an objective eye on what’s realistic and appropriate.
[1] Subcommittee on Investigations and Oversight and Subcommittee on Energy and Environment
Thanks Lisa. I hope we will alll take time to consider and strongly rebut the wind industry’s major push this year – claiming they produce energy at $55/MWH compared with “new coal plant energy.” DOE EIA Annual Energy Outlook pegs wind’s cost to produce at $130/MWH. Why the discrepancy, and who’s fooling who?
While power purchase agreements (PPAs) between wind owners and energy buyers may reflect a half price (half cost) number, Congress needs to shake out the cobwebs and recognize the difference between levelized cost of energy (LCOE) and a PPA contract wholesale price. Taxpayers and ratepayers ultimately pay the difference, and once the damage is done (building out wind), there is no going back to the “good old days” of affordable electricity. The time for a reality check is now, and the message must be that LCOE wind ($12/MWH nationally) only covers about 1/3 of the LCOE of conventional energy. The other 2/3 (fixed costs of capacity resources) must remain even though they are not reflected in EITHER wind PPA price or wind LCOE.
One effective way to set the record straight has apparently not yet reached decision makers and the public, nor do I see this in your testimony. That is, wind energy saves fuel only, stranding the capital and other fixed costs of conventional plants. LCOE includes fixed costs and variable costs, as well as a transmission cost, according to DOE EIA methodology and reporting. A year or so ago IER made a nice stacked bar chart showing these breakdowns graphically. The variable costs including fuel for coal and gas tend to range between $30 and $40 per MWH. That’s all wind can save. The fixed costs of conventional plants, which make up the majority component of LCOE for any new plant, can never be saved by wind.
That’s another way of saying “You can’t just build wind. You have to build wind AND conventional plants to keep the grid operational.” Once you do that, you have more than double the capital investment to recover with the same amount of sales. This is not good.
I will say it again. What works is dependent upon what you wish to achieve. If your goal is a growing, prosperous, advanced civilization of free people, then wind power is a huge looser. If your goal is a constrained, decaying, civilization of masters and serfs, then wind power is a winner in spades redoubled.
Was there not a single mention of the large negative externalities of fossil fuels? Or are we supposed to pretend they don’t exist?
Generating power with fossil fuels creates more damage than value-added. That’s the conclusion, at least, of Yale economist William Nordhaus in a 2011 paper:
Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus. 2011. “Environmental Accounting for Pollution in the United States Economy.” American Economic Review, 101(5): 1649–75.
http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.1649
http://nordhaus.econ.yale.edu/documents/Env_Accounts_052609.pdf
To summarize that paper’s findings: for every $1 in value that comes from coal-generated electricity, it creates $2.20 in damages.
Total damages: $70 billion per year (in 2012 dollars).
Petroleum-generated electricity is even worse: $5.13 in damages for $1 in value.
Coal-based power is worst of all. In addition, the National Academy of Sciences estimates that fossil fuel use causes damages of at least $120 B/yr to health and the environment:
“Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use”
National Research Council, 2010
http://books.nap.edu/catalog/12794.html
Of course, no one on forums like this wants to mention external costs, because including them makes it clear that we are all subsidizing fossil fuels by a huge amount through worse health and higher medical costs.
David – thank you for your comment. The larger question is whether wind energy provides an opportunity to wean us off fossil fuel. Using the ISO-New England’s and DOE’s own studies wind cannot replace coal, nor is it expected to. Displace fossil, yes — somewhat. Replace it, NO. But the cost of achieving large-scale integration of wind is in the trillions of dollars. The environmental, economic and societal impacts of erecting tens of thousands of turbines and crisscrossing the US with miles of new 765kv lines to generate and deliver the energy have not been quantified.
Lisa: So was there, or not, any mention of negative externalities in this hearing?
If, as Muller et al claim, fossil fuels provide a negative value added, then wouldn’t *any* replacement of them be of benefit? Yes, it would — so it’s a matter of ramping them up and providing continuous coverage….
Also, who funds IWAG? Aren’t you required to reveal this when testifying before Congress? Aren’t *all* witnessed required to reveal where their bread comes from in such testimonies?
Thanks for your comment. I encourage you to visit the Committee’s webpage that defines the purpose and witness list for the hearing:
http://science.house.gov/hearing/subcommittee-investigation-and-oversight-subcommittee-energy-and-environment-%E2%80%93-joint-hearing . All testimonies for the hearing are available there as well as the completed ‘Truth in Testimony’ forms per witness and an archived webcast. Regarding your question ‘wouldn’t any replacement of [fossil fuel] be of benefit?’, wind energy is not a capacity resource and thus cannot replace fossil fuel. But is we ignore that fact, ‘ramping up’ wind power and providing ‘continuous coverage’ using a variable resource is easily said but not realistic.
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It’s easy to challenge David Appell’s comments here. Why would Lisa Linowes, or anyone, testify about the downside of coal at a hearing specifically focused upon the “Impact of Tax Policies on the Commercial Application of Renewable Energy Technology?” Since between 75-90% of the nation’s “renewable” portfolio consists of wind technology, the hearing’s testimony should have overwhelmingly engaged whether or not wind’s performance justified continued tax subvention–not whether coal generation was a good idea or not. Such testimony would likely be welcomed at a joint Congressional hearing about the “Impact of Tax Policies on the Commercial Application of Coal Technology.”
As for David’s insinuation about IWAG, I’ve known Lisa and her “organization” for years. She didn’t identify a funding source for it because–she’s it. She, like hundreds now across this country, have taken on this awful industry as a public service in the best noblesse oblige tradition, hoping to put a stake through its heart before it hurts even more people and wildlife–and rips off even more rate and taxpayers.
But let’s play David’s reindeer game. With 42 GW of installed wind in the USA, where is the evidence that it is responsible for reducing overall CO2 emissions, let alone fossil fuel generation?
Answer: it does not exist because wind is a dysfunctional energy source (not to mention the fact that it produces no modern power). That’s Lisa’s point: tax incentives for dysfunction. Even assuming David’s take on coal is correct–and it is not, what in the world does wind have to do with addressing the problems he raises? As the data show, in most areas of the country with a lot of coal generation combined with a lot of installed wind, the more wind–the more coal. This is true throughout the world, which now has over 200GW of installed wind.
David might ask, if his tongue is not too far into his cheek, why the industries he so despises are so heavily invested in wind? Does he think, for example, that GE, NextEra, ExxonMobile, Chevron, BP, Weyerhaeuser, Shell–all corporations with a lot of coal in their portfolios–are doing a public service with their wind operations by their “all of the above” campaigns, in the process winding down their fossil fuel plants? Or might he think., as I do, that they’re cynically pushing wind, like their political cronies (Obama, Bush W, Pelossi, Gingrich), because they know wind will only enhance their fossil fuel investments–while also providing a substantial income generating mechanism via tax sheltering (those tax policies are having quite an effect, evidently). He must be very proud that GE and NextEra have paid no federal income taxes in years, in large part because of their wind portfolios. How happy he must be that Congress has not indexed any performance standards for the dumb and dim of renewables that would require wind, for example, to demonstrate how it was reducing the horrors he imagines.
For the same reasons he doesn’t seem to enjoy people like Lisa going after the nutcasery of wind, he might take offense at those who would resent Congress for giving gliders huge tax incentives to become major players in the air transport sector, hoping against hope they would one day replace those CO2 emitting 747s. And, hey, why not give “production” tax credits for wind “powered” appliances? And automobiles? Let’s give those electricity drawing/gas guzzling machines real competitive wind doppelgängers–and watch productivity and modernity drop like a stone.
I’ve had enough of David’s continued non sequiturs. It does not follow, literally, that any of the tax policies enabling “renewables” has–or can–even slightly improve the situation he decries.
Dave seems to be implying that wind energy is a substitute for fossil fuel burning. That’s an understandable mistake for someone who hasn’t studied wind’s fuel efficiency impacts on the fossil fleet, and that each unit of energy from wind depends on two to four units of fossil energy to create a stable product that can displace base load coal energy. But wind energy can only substitute for some of the variable costs of fossil energy (including some of the fuel), but NONE of the fixed costs. Rather by making the conventional fleet produce less kWHs per year, the fixed costs per unit of fossil generation rise along with the per unit variable costs. if you want to stop coal emissions, CCGTs are the best value by at least seven fold. If you want to stop setting things on fire to keep yourself comfortable, well… there are a few billion people who just aren’t quite ready to make that leap!
Tom Stacy:
“But wind energy can only substitute for some of the variable costs of fossil energy (including some of the fuel), but NONE of the fixed costs.”
Yes, wind can’t affect the fixed costs for conventional generation–or replace conventional generators, since wind has no firm capacity. But you shouldn’t confuse “can” with “does.” It is probable that in places like ERCOT, wind is causing fewer kWh of natural gas generation (though generally not at times of peak demand), with the economic effect you describe on natural gas operators. But coal production in ERCOT, as well as elsewhere, particularly in areas with high coal generation like the MidWest, seems not affected at all; certainly there is no evidence that wind is responsible for any coal reductions.
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If you wonder where your defense money is going Google “Army or Navy or Air Force and Wind or Solar.” (seperate searches) Each gets hundreds of hits with billions of dollars spent (poured in a hole in the ground) to “achieve energy independence for the DOD.” Their aim is to acheive 20 percent of their power from “renewables.”