Debating wind power cost estimates – 4

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about the federal government's wind power cost estimates. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

Next in his response Goggin moves into a more detailed version of his claim my report “relies on old and theoretical data for the cost of wind, even though it had access to more recent real-world data.”

As I mentioned in an earlier post, I primarily draw on the Lawrence Berkeley National Lab’s 2012 Wind Technologies Market Report (WTMR), published in August 2013, and the National Renewable Energy Lab’s 2011 Cost of Wind Energy Review (CWER), published in March 2013. These two reports are the most recent publications in the federal government’s two long-standing research efforts examining the cost of wind energy. If this work isn’t current enough for Goggin, his complaint is with the national labs and not me.

The WTMR summarizes “real-world data,” while the CWER presents Levelized Cost of Energy (LCOE) estimates for wind power. The NREL’s LCOE estimate relies on data from the Berkeley Lab’s WTMR and is typically published a few months later. Since the Berkeley Lab’s 2012 report was published a little over two months ago, the NREL LCOE estimate update for 2012 likely won’t emerge for another few months.

My report focuses on these two recent government publications because they are the latest summaries from the two most thorough and complete research efforts on the developer’s cost of wind energy in the U.S., and because they are the source of the most frequently cited information on wind energy costs.

In the following I reply to remarks Goggin makes in the first half of his more detailed comments.

Continue reading

MasterResource–$0.11/kWh: Why Wind Is More Expensive than Advertised

At 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 Power Cost Estimates.”

And be sure to notice in the comments on that blog post: remarks from the American Wind Energy Association.

Debating wind power cost estimates – 3

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

The AWEA response to my report includes the retort, “IER is also incorrect in alleging policy support for wind energy is large or unusual.” (Link in source.)

Actually, no claim in my report suggests policy support for wind is large relative to other energy resources–I don’t discuss subsidies or policy supports for other energy sources. I didn’t intend to allege a relative subsidy size claim. But if Goggin is interested in my view, it is: Unfortunately, policy supports for politically-favored energy sources are not at all unusual, and they tend to reduce overall economic performance, and we’d be better off if we gave up on trying to direct energy markets from Washington DC.

We can’t reach back and undo all of the damage from bad energy policies of the past, but we ought to fix the energy policy we have now. And by “fix” I mean cut energy production subsidies, purchase mandates, favorable tax treatments, regulatory limits on competing energy resources, and otherwise minimize the role of political influence in the choices of energy producers and consumers.

Cut them all down: renewable subsidies, fossil-fuel subsidies, and nuclear subsidies. Sure, do something about pollution, and I’m not in principle against government-sponsored research, but various energy production subsidies and other policy supports tend to benefit a few at the expense of the rest of us.

What my report does claim is the PTC-subsidy for wind power imposes costs on non-wind participants in power markets. Without the PTC, we’d have a lot fewer wind turbines connected to the grid; the wind turbines that did get built would not bid into markets at negative prices, and with fewer wind turbines installed the resulting modest displacement of non-wind power might even be a net economic benefit.

Part of the problem is the PTC subsidizes output at the margin and so directly distorts prices and the generation mix in regional power markets. The alternative Investment Tax Credit subsidy sometimes available to wind power developers, on the other hand, is inframarginal and a bit less distorting: excessive amounts of wind are built, but ITC-subsidized wind power faces no special incentive to run at negative prices. (In economics terms, the ITC is more like a lump-sum transfer while the PTC is a per-unit production subsidy. A per-unit production subsidy is typically seen as more distortionary than a lump-sum transfer.) Generally, when wind power runs at negative prices, it suggests that non-wind baseload power plants are being pushed into a costly pattern of cycling off and back on. These cycling costs, as well as the modest wear-and-tear on the wind turbines operating when their output has negative value, are excess costs caused by the PTC subsidy.

Next: So far I’ve been responding to the introduction of the AWEA/Goggin response. The rest of the response goes into a little more detail on certain points–I’ll respond in a little more detail as seems appropriate.

Debating wind power cost estimates – 2

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

Goggin complains I am relying on obsolete data and government estimates in my report instead of “price data from signed contracts.” He wrote:

The reality is that wind energy is driving electricity prices down, thanks to large recent reductions in its cost. Contracts that utilities signed to purchase wind energy, which were approved by state regulators and filed with the Federal Energy Regulatory Commission, document that the average purchase price for wind energy was $40 per MWh in 2011 and 2012.

While IER tries to hide behind old data and theoretical estimates, it cannot escape from the real-world data proving that utilities are signing low-cost contracts to purchase wind power. It is strange that an organization that claims to support free-market price signals would use government estimates instead of price data from signed contracts.

Wind energy’s costs have fallen by more than 40 percent over the last four years. These cost declines have been driven by technological improvements as well as the development of a domestic wind-turbine manufacturing sector that now builds over 70 percent of wind turbine value in the United States. [Emphasis in original.]

It is true that wind energy is driving electric prices down, but it has little to do with the reduction in capital cost and more to do with the effect of adding low marginal cost wind power in regional power markets. Whether these are efficient prices are another matter–consider, for example, that many in Texas are worried that low power prices are discouraging investment in new generation at a time that ERCOT studies suggest new investment will soon be needed. I’ll come back to this question in a later post.

Old data? My primary resources are the 2012 Wind Technologies Market Report (WTMR) produced by the Lawrence Berkeley National Lab, published in August of 2013, and the 2011 Cost of Wind Energy Review (CWER) produced by the National Renewable Energy Lab, published in March 2013.These two document series funded by the Department of Energy are the most recent publications in the longest, most detailed and complete assessments of wind power costs available targeting the U.S. wind industry. I cite to earlier reports in the WTMR and CWER series on a number of occasions when they present relevant discussions of methods and data sources that are not reproduced in the most recent report. A scan through my bibliography shows I cited one document as old as 2004, but the bulk of my citations link to documents published in 2011, 2012, and 2013.

Government estimates instead of market data? Goggin claims, “It is strange that an organization that claims to support free-market price signals would use government estimates instead of price data from signed contracts.” Not at all. The Berkeley Lab and NREL reports are the most frequently cited and likely most authoritative resources available on the topic of wind power costs. The primary point of the my report was to evaluate and provide broader context for understanding the frequently-cited wind cost estimates presented in the Berkeley Lab and NREL reports. For that reason, the report focuses on these “government estimates instead of price data.”

There is more. Cost and price are far from equivalent concepts. Goggin seems to miss this point, but the Berkeley Lab understands. At page 49 of the 2012 WTMR, the report authors said, “because the PPA prices in the Berkeley Lab sample are reduced by the receipt of state and federal incentives (e.g., the levelized PPA prices reported here would be at least $20/MWh higher without the PTC, ITC, or Treasury Grant), and are also influenced by various local policies and market characteristics, they do not directly represent wind energy generation costs.” (Emphasis in the original.)

As even a basic understanding of economics reveals, a subsidy can reduce a price even as it increases the cost of a good or service.

Goggin claims that, because “the average purchase price for wind energy was $40 per MWh in 2011 and 2012,” we can conclude that there are large reductions in cost. Goggin’s $40 per MWh report likely comes from the most recent WTMR, but here is the full sentence with a bit more information:

After topping out at nearly $70/MWh for PPAs executed in 2009, the average levelized price of wind PPAs signed in 2011/2012—many of which were for projects built in 2012—fell to around $40/MWh nationwide, which rivals previous lows set back in the 2000–2005 period.

So prices for contracts in 2011/2012 have returned to levels of the 2000-2005 period? And this is, supposedly, evidence of vast reductions in the cost of wind power, that we are now–after shoveling billions of dollars into the wind power industry post 2005–only now getting wind power contract prices back to the level that they used to be? Goggin’s got more explaining to do if he wants to make an argument using prices to represent costs.

A much more likely explanation is that wind power contract prices depend, in part, on alternative sources of electric power. As natural gas prices rose up through 2008, utilities were willing to pay higher prices for wind power. As natural gas prices fell beginning in late 2008, wind power contract prices fell with them. I’ll hazard the guess that these contract prices have more to do with natural gas prices then reductions in wind power costs.

Up next: Are government subsidies for wind power large or unusual compared to government support for fossil fuels, nuclear power, and other resources?

Debating wind power cost estimates – 1

On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day the Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.

Before we get to substantive issues, I’d like to emphasize that I have no particular objection to wind energy technology. In fact, geek-wise I think it is kind of neat that tall, graceful, well-designed machines can make electric power out of the wind. However, I do object to a wide range of federal energy policies including the Production Tax Credit. Like most other government subsidies, the PTC distorts the electric power market and makes most people worse off.

Okay, still not yet to the substantive issues, but consider Goggin’s opening paragraph:

After two failed attempts to attack wind energy earlier this month, the fossil-fuel-funded Institute for Energy Research (IER) has now struck out swinging (strikes one and two are documented here). Strike three comes from a report written by Michael Giberson that relies on obsolete data and largely regurgitates anti-wind myths that have already been debunked. As a result of those mistakes, IER’s report overstates the actual cost of wind energy by around 100%.

[Links are carried over from the AWEA website for the convenience of the interested reader.]

The words “fossil-fuel-funded” link to a website ran by the Natural Resources Defense Council intended to finger the groups “trying to stop clean energy and new jobs” and reveal (some of) these groups sources of funds. It notes that the Institute for Energy Research (IER) leadership includes people who had worked for large energy companies in the past (Enron, Koch Industries) and that IER had taken money from ExxonMobil. (I tried to dig a little deeper by using resources relied upon in a Daily Kos article published a few days ago about links between the Koch brothers and various policy and advocacy groups, but didn’t turn up anything more on IER.)

Now I didn’t personally speak to anyone from Koch Industries or ExxonMobil about any of this work, and I don’t personally care much where IER gathers its money from (as long as I get paid). It also doesn’t matter to me where AWEA gets its money.

In any case, if you want to dismiss my report because IER once took some money from ExxonMobil, then you should read this short essay instead.

The rest of Goggin’s opening paragraph asserts I relied on obsolete data and anti-wind myths to make my case, and as a result I overstate the “cost of wind energy by around 100%.” These points get into substantive issues, I’ll take them up in subsequent posts.

“Please, sirs, may I have some more … subsidies for wind power?”

Michael Giberson

From The Hill’s Energy & Environment Blog:

A group of military veterans pressed congressional Republicans on Thursday to renew a tax credit for the wind industry that their party’s standard-bearer, Mitt Romney, has vowed to end.

The veterans, who are all employed by the wind industry, secured meetings with staff for House Majority Leader Eric Cantor (R-Va.), House Ways and Means Committee Chairman…

The two elements of half-hearted policy substance mentioned in the article are both suspect: “jobs for veterans,” and “reduces dependence on foreign energy.”

Over the last decade the domestic oil and gas production industry added twice as many jobs as the 37,000 jobs the wind industry claims expiration of the PTC will threaten. The only “foreign energy” we import in any quantity is petroleum, excepting some power and natural gas from Canada, and the wind power subsidy has approximately nothing to do with how much petroleum we import.

On the other hand, increasing domestic oil and gas production actually is reducing “dependence on foreign energy,” including imports from OPEC members and other sources, and even including power and natural gas from Canada.

Using military vets to lobby for wind power tax breaks? I guess some K Street lobbying genius imagined using vets would help the industry get a bit of face time with Republican lawmakers who would otherwise rather meet with representatives of some other special interest group. Don’t our military veterans deserve better than to be made into poorly-informed lobbyists for wind energy?

What’s next, retired firefighters, grizzled ex-cops, harried emergency room nurses?

Why not just round up some starving orphans and have them come plead Congress, “Please, sirs, may I have some more … subsidies for wind power?”

Any reason to be worried about wind power industry layoffs?

Michael Giberson

In an article titled “4 Reasons All Americans Should Be Worried About Wind Layoffs,” you’d think there would be at least one reason that people should be worried about wind industry layoffs.

Sadly, no.

Instead the author tells the reader: (1) wind power installations are largely in GOP-held congressional districts, (2) the U.S. is losing the “race” with China to build the most wind power, (3) fossil fuels receive tax breaks too, and (4)  natural gas prices are low.

The only substantive content in the short piece was a casual invoking of “the externalities of fossil fuel.” I’d encourage the writer to hold on to this sentence, toss the rest, and start again.

Negative power prices due to wind power’s subsidy

Michael Giberson

On the NYTimes.com Green blog, Matthew Wald reports on “An argument over wind.” The issue is the scheduled-to-expire Production Tax Credit for wind power. As previously mentioned here, former PTC-supporter Exelon Corp. has come out against the PTC extension. It parted ways from the American Wind Energy Association, of which it had long been a member, over the issue.

Wald reports on an Exelon-funded study done by The NorthBridge Group, “Negative Electricity Prices and the Production Tax Credit.” According to Wald:

The study sponsored by Exelon, prepared by the NorthBridge Group, which does extensive consulting for utilities around the country, found pockets where the number of negative hours reached 12 percent or more. While various types of electricity generation have received subsidies over the decades, said Frank Huntowski, one of the authors, “I don’t think we’ve seen something as dramatic as this.’’ …

Negative pricing occurs mostly on spring and fall nights when the wind is blowing strongly but offices, stores and factories are mostly closed and temperatures are so mild that there is virtually no demand for home heating or air-conditioning. The phenomenon existed before the surge in construction of wind machines, but the new industry is making it worse, some industry participants say, especially for companies with baseload plants that were built to run at a steady rate around the clock.

That is a special problem for Exelon, which runs many nuclear plants in the Midwest; nuclear plants cannot change their output quickly.

Long-time readers may recall that we’ve discussed negative power prices many times before here on Knowledge Problem. This link will execute a search of the KP archives: negative+prices.

Related:

Losing the race to sound conclusions on the Production Tax Credit

Michael Giberson

When I worked on public policy issues in Washington, DC, I used to read the National Journal. It tended a bit toward Washington-establishment thinking, but at least it gave evidence of thinking. Now much farther from the daily fray, I only occasionally come across the National Journal, and usually just the so-called Energy Experts Blog. I’m less impressed with the National Journal than I used to be.

Recently they’ve posted a bundle of energy “experts” on the production tax credit. I mentioned the other day that one of the “experts” thought the PTC paid $2,200 per megawatt (actually it pays $22 per megawatt-hour). I just noticed another “expert” reporting that the PTC is set to expire at the end of 2013 (oops, off by 365 days). I guess we’re getting raw, unvarnished expertise on the Energy Experts Blog, nothing subjected to the indignities of editorial review.

But worse than these little slip ups is the general lack of depth to many of the arguments. For “Ms. 2013,” who works for the Pew Clean Energy Program, whether or not we continue the Production Tax Credit is apparently about being at the top of the world in building “clean energy.”

Really? This is your policy criteria? Whether we can wear the “#1 Clean Energy Nation” T-shirts and wave the big “We’re #1″ green energy foam fingers? I thought these kinds of public policy decisions should be informed by considerations of costs and benefits, not a bunch of cheesy cheerleading routines.

Quoted, so you can see what I’m talking about:

In 2011, for the first time in several years, the United States led the world by investing more than $48 billion in clean energy. The clean energy sector represents one of the fastest-growing industries globally, with investment increasing more than 600 percent between 2004 and 2011 (excluding research and development).

We’re in danger of losing our place at the top, however. To maintain our lead amid fierce international competition and to continue to attract private capital, there must be policy certainty. While other nations have national policies to encourage the adoption of clean energy, we rely on a patchwork of state policies and cyclical federal tax incentives, one of the most important of which is to end in a year.

The production tax credit (PTC) is an effective tool to keep electricity prices low and encourage the development of proven clean energy projects. While not large–about 2.2 cents per kilowatt hour–it gives American businesses the certainty they need to continue to invest, build, and deploy. But it’s set to expire at the end of 2013. Uncertainty about whether Congress will act to extend the PTC has already resulted in a sharp drop in investments in wind energy production, threatening the livelihoods of the more than 78,000 people nationwide who are in wind-supported jobs.

When Congress has allowed the PTC to expire in the past, wind installations declined by 73 to 93 percent.

“Wind-supported jobs”? Funny phrase, given the context. Apparently they are 73 to 93 percent tax-break supported jobs. The wind-supported jobs are the ones that would be left in the business after the tax break goes away.

Any economic historians in the audience who can spot check this energy development claim?

Michael Giberson

Please let me know ASAP if you can find any economic historians, energy policy specialists, economists or persons with at least a high school diploma who actually believes the following claim:

For over a century, every major energy source – petroleum, coal, nuclear, natural gas and renewables – has been developed due in large part to favorable federal policy that includes incentives. Without federal assistance of these fuel sources, it is unlikely that our nation would have grown to the economic superpower that it is today.

While the National Journal‘s collection of pro and con Production Tax Credit opinions includes a lot of bullshit, this pair of claims rises to the top. Fully 100 percent USDA prime bullshit, in my opinion.

But prove me wrong, please: find me an interested party with a plausible argument and a grasp on one or two facts that justifies the above claims.

MORE: By the way, the loose thinking and sloppy work isn’t only on the pro-PTC side. Guys arguing that wind power turbines are killing way too many birds slip in the claim that the PTC pays $2,200 per MWh. Um, no, only about $22 per MWh. And, of course, they are focused like a laser beam on the seen dead birds near wind turbines and ignore the unseen dead birds killed by other power production methods.

But thanks for joining us here on the “Let’s Pretend We’re Actually Serious People Doing Serious Thinking” show.