Posts Tagged ‘wind power’

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A.C. Pigou, public choice economist, on the use of government

February 20, 2012

Michael Giberson

At the end of a comment on Windfall, a new documentary on the effects of wind power development on a community in upstate New York, Michael Munger pulls out the key Pigou quote.

Pigou is relevant because the best possible case to be made for subsidizing wind power production involves correcting for the externalities associated with conventional electric power production. Maybe we imagine a Pigovian tax on conventional generators as a sort of first-best solution, and direct subsidy to alternative generators as a second- or third-best solution.

Well, here Munger whips out the Pigou:

It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole.

From A. C. Pigou, Economics of Welfare, chapter 20, paragraph 4, available online free via the Library of Economics and Liberty.

Yes, well before James Buchanan, Gordon Tullock, Mancur Olson, Robert Tollison or even Michael Munger were objecting that government intervention may go awry, Professor Pigou was already there.

[ASIDE: I was led to wonder why this insight was seemingly lost from economics for several decades after Pigou published his work. Maybe someone has researched the question carefully. In the absence of someone setting me straight, I'll blame Paul Samuelson.

Samuelson's influential Foundations of Economic Analysis refers to Pigou several times, according to the book's index, but so far as I noticed just once it mentions that the presence of Pigou's external costs means "there is of course need to interfere with the 'invisible hand'." (p. 196)  Samuelson neglects Pigou's qualification: "The case, however, cannot become more than a prima facie one, until we have considered the qualifications, which governmental agencies may be expected to possess for intervening advantageously." (And then Pigou continues with the public choice-like lines Munger quoted.)]

Posted in Economics, Electricity, Energy markets, Environmental policy | Tagged , , | 5 Comments »

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Marc Gunther on the brewing solar PV trade wars

January 10, 2012

Michael Giberson

Marc Gunther asks, “Should we worry about Chinese government subsidies to its solar industry? Or send the Chinese a thank-you note?“ The issue is a “dumping” complaint filed by several U.S. based manufacturers with the U.S. International Trade Commission alleging China so subsidizes its solar PV production that the PV panels are being sold here at a loss.

As Gunther notes, “it takes chutzpah (that’s a technical term in economics) for US solar manufacturers to complain about subsidies in China since they, too, benefit from … [long list of subsidies provided by U.S. federal and state policies].”

ASIDE: Elements of the wind power industry have taken inspiration, as a few weeks ago four U.S.-based manufacturers of wind turbine towers filed a complaint with the ITC against Chinese and Vietnamese wind turbine tower manufacturers.

[HT to AltEnergyStocks.com, where Gunther's column was republished.]

Posted in Electricity, Environmental policy, Regulation | Tagged , , , , | Comments Off

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Is subsidising renewable energy is a good way to wean the world off fossil fuels?

November 17, 2011

Michael Giberson

The Economist is hosting an online debate on the motion, “This house believes that subsidising renewable energy is a good way to wean the world off fossil fuels.” Matthew Fripp of the Environmental Change Institute at Oxford University has presented the affirmative case for the motion, Robert Bradley, Jr., of the Institute for Energy Research has argued the negative.

In closing arguments, Fripp makes what seems to be the best possible case for a combination of directed renewable energy subsidy (either renewable portfolio standards or feed-in tariffs) and gradually increasing carbon tax. While actual policy is unlikely to be as gradual, certain, and efficient as Fripp suggests, it seems desirable for policymakers to at least try, right?

That is, it seems desirable for policymakers to aim for gradual, certain, and efficient policy support for renewable energy assuming we accept the goal of weaning the world off fossil fuels. Bradley doesn’t.

Against a proposition that is formally about the means to an end, Bradley closes by arguing against the end. He argues cheap energy is good energy:

Good public-policy intentions are not enough …. Higher-quality, less-expensive energy enhances living …. This fossil-fuel dividend, if you will, enables a variety of lifestyle enhancements, including those for better health. Wealth is health, and human health should be at the core of environmentalism.

To me Fripp’s polished policy scenario is unappealing in part because of how appealing he makes it seem. (!) I’m not at all ready to turn the energy industry over to a central planning bureau, even Fripp’s ideal which would limit its interventions to minimally intrusive ways of promoting renewable power while a carbon tax was phased in and then disappear. Government attempts to manage the economy tend to destroy economic value; Fripp hasn’t convinced me government has overcome the knowledge problems and coordination problems inherent in economics action.

When renewable energy sources earn a place at the “high-quality, less-expensive” table, we’ll all be wealthier and healthier for it. In the meantime, in a world with significant problems of poverty and disease, wasting resources to install inefficient technology on large scale is destructive of wealth and health.

NOTE: At the moment I’m posting, the reader voting shows 49% in agreement with the motion and 51% opposed. Today, November 17, 2011, is the last day for reader voting. My recommendation: if you like government planning for the energy economy, vote Yes; if you prefer wealth and health, vote No.

Posted in Electricity, Energy markets, Environmental policy, Politics | Tagged , , , | 9 Comments »

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Massachusetts observes that green power mandates may be raising consumer costs

November 10, 2011

Michael Giberson

Let’s just say when the best example of a success story is a long-term contract signed by a utility and the Cape Wind project, you haven’t exactly resolved concerns about the practicality or cost-effectiveness of the law.

From the Boston Herald, “AG: Energy costs rising under Mass. renewables law“:

The Green Communities Act, signed in 2008 by Gov. Deval Patrick, was intended to help Massachusetts wean itself off fossil fuels and reduce emissions that lead to global warming.

In remarks prepared for a legislative oversight hearing, [Massachusetts Attorney General Martha] Coakley indicated that a review by her office found plenty to like about the three-year-old law, along with some concerns.

“In short, we have found a number of benefits — including increased energy efficiency programs that lead to savings for many consumers,” Coakley said. “But we also have found that the (law’s) programs have escalating costs that will cause an increase in electricity rates.”

The cost of implementing the law will exceed $4 billion over the next four years, Coakley said, resulting in the estimated 7 percent increase in the total delivered costs of electricity to consumers and businesses. She noted that Massachusetts electric customers already pay some of the highest rates in the nation and that the state is “likely to remain at the top of that list.”

Okay, so they’ve identified the costs at over $4 billion for the next four years. The article doesn’t mention any estimate of the benefits created.

(Note that it wasn’t Coakley that cited the Cape Wind deal, but rather the state’s Secretary of Energy and Environmental Affairs and the chairwoman of the Department of Public Utilities.

“A long-term contract provides the certainty that can be critical in making financing available,” [DPU chairwoman Ann] Berwick said.

Of course she is right! A long-term contract can transfer a substantial portion of the riskiness from the private investors to the utility’s locked-in ratepayers. It can be a great deal for the investor, and I’m sure the investors are quite happy to have government policy and state policymakers helping to ensure a good return on their private investments.

Uh, and by the way ratepayers, your already high rates are going higher.)

Posted in Electricity, Environmental policy, Regulation | Tagged , , | 1 Comment »

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Scottish wind power plants paid not to produce

July 13, 2011

Michael Giberson

The Telegraph has reported “six Scottish wind farms were asked to stop producing electricity on a particularly windy night last month as the National Grid was overloaded.” The operators were paid a total of £900,000 to take the night off, likely earning more from not operating than they would have earned from selling power that night.

The payments were discovered by the Renewable Energy Foundation, a green think tank, which accused the Government of building too many wind farms in northern Britain.

John Constable, director of policy and research, said not enough care had been taken to ensure there were enough high-voltage cables to transfer the power to other parts of the UK when it was needed.

“Hasty attempts to meet targets for renewable energy mean some Scottish wind farms are now in the extraordinary position of not only printing money when they generate, but printing it even faster when they throw their energy away,” he told the Sunday Times.

The Renewable Energy Foundation provides additional information on its website:

Posted in Electricity, Energy markets, Environmental policy | Tagged , | 7 Comments »

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Cheap natural gas upsetting wind development plans, and other energy stories

May 23, 2011

Michael Giberson

Energy stories from around the web.

  1. Financial Times, Gas threat to wind farm growth – “Construction of new wind farms in the US is set to decline next year because of competition from cheap natural gas for power generation, the country’s largest developer of new wind power projects has said.”
  2. Greentech grid, California ISO opens new high-tech control room - “We partnered with Google and we went from your typical map board made of plastic tiles, with digital readouts, to an 81-foot video display wall.”
  3. Reuters, “Japan eyeing plan for solar panels on all new buildings-Nikkei” – Japan may this week announce proposal to require all new buildings to have solar PV panels by 2030.
  4. San Antonio Express-News, “Eagle Ford’s calling card: help wanted” – Fracking not just for natural gas. Oil from shale big in South Texas. “But drilling in the Eagle Ford, a 400-mile-long formation stretching from East Texas to Webb County, has touched off a hiring frenzy in South Texas that is generating thousands of jobs. Now, drilling is moving so swiftly that the scramble for workers has caught some short.”
  5. Houston Chronicle, “Nat gas feud pits prosperous N. Texans against energy industry” – Oil and gas wells not always the best of neighbors.
  6. Reuters, “Chesapeake handed record fine for Pennsylvania gas drilling” – The company was fined a total of $1.1 million for problems at two sites in Southwestern Pennsylvania: $900,000 for seepage from non-shale shallow gas formations due to a poorly-done well casing and cementing job, and $188,000 for violations associated with a fire that injured 3 workers. (See also this Associated Press story.)
  7. Houston Chronicle reporter Richard Dunham, “Why Washington is no help at the pump” – Dunham says “politics as usual” is causing Washington to be of no help in solving our energy problems. (My view: For the most part we’d be better off without Washington trying to “help” consumers. If politics-as-usual is keeping Washington out of the energy business, that is probably a good thing.)
  8. William O’Keefe at the FuelFix blog, “3 Myths About Breaking U.S. Oil Habit” – Counter to some prevailing wisdom (while at the same time affirming popular views held by others) about climate change, energy independence, and resource scarcity.
  9. The Hill’s E2-Wire, “Greens, industry draw battle lines in fight over oil pipeline” – More on the political maneuvering surrounding the Keystone XL pipelines. Environmentalists are mostly opposed to the pipeline since it will mostly be supplied from the Alberta tar sands, and environmentalists are mostly opposed to tar sands development.

Posted in Electricity, Energy markets, Environmental policy, Politics, Regulation | Tagged , , , , | 4 Comments »

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Bonneville Power Administration says no to negative prices again

May 20, 2011

Michael Giberson

The Bonneville Power Administration (BPA) Administrator has adopted interim Environmental Redispatch and Negative Pricing Policies to deal with potential overgeneration conditions on the BPA power system. In brief, BPA plans to employ “Environmental Dispatch” rules for operating the power system in a manner conducive to BPA meeting various legal and regulatory constraints; the BPA Negative Pricing Policy is “we won’t allow it.”

Excepts from pages 10-12 of “BPA’s Interim Environmental Redispatch and Negative Pricing Policies: Administrator’s Final Record of Decision,” May 2011, below. I haven’t yet read the 68-page long section “Negative Pricing Policy,” but am adding it to my summer reading plans.

Related:

From the BPA report:

The events of early June 2010 illustrate how the increase in wind generation has influenced the ability to manage high flows on the Columbia River. … In early June, however, a strong Pacific jet stream brought storm systems with heavy precipitation and runoff. Snake River streamflows nearly tripled, and Columbia River streamflows nearly doubled. The resulting flows exceeded those needed to meet flow and spill objectives for fish passage. Federal water management staff focus shifted to developing strategies and modifying operations to reduce excess spill and minimize excessive TDG production to the extent practicable.…

During this time, most Northwest thermal generation shut down or reduced to minimum operating levels. These generation owners obtained low-cost or free Federal hydropower to replace thermal generation. Thermal generation normally finds it economical to displace their fuel with lower-cost hydropower since they can store or conserve their fuel while they receive hydropower.

However, due to differing economic considerations, the roughly 3,000 megawatts of wind power projects located in BPA’s Balancing Authority Area did not respond to the availability of free Federal hydropower. Wind power projects cannot store their fuel and are generally eligible to receive Federal Production Tax Credits (PTC) and/or state Renewable Energy Credits (REC). Wind power output ranged from zero to nearly full output, depending on wind conditions….

Unlike thermal operators, wind operators have an economic incentive to operate as much as possible, regardless of system conditions. The PTC is currently $21 per megawatt-hour (“MWh”) and state RECs are generally in the $8 to $20 per MWh range, so this incentive is significant. While all wind power projects are eligible to receive RECs for production, most new wind power projects have opted not to take the PTC and instead opted for the Investment Tax Credit (“ITC”) or other grants that provide up-front financial benefits tied to the cost of the project and not actual production. Wind power projects that opt for the ITC or other grants receive the full financial benefit of these incentives regardless of project output (pp. 11-12).

BPA believes that its statutory responsibilities and the objectives of the Northwest Power Act would be frustrated if BPA were required to pay negative prices in order to ensure compliance with BPA’s environmental responsibilities.

… While one purpose of the Northwest Power Act is to encourage the development of renewable power in the Pacific Northwest through BPA’s acquisition authority, that is one purpose among many that BPA must meet, including assuring the Northwest has an economical power supply, providing environmental quality, continuing to repay the U.S. Treasury on a current basis, and protecting, mitigating and enhancing fish and wildlife of the Columbia River and its tributaries. …

[P]aying negative prices to displace renewable generation to ensure BPA’s environmental responsibilities are met is neither socially optimal nor consistent with traditional principles of cost causation. BPA’s statutory preference customers would end up paying the costs of displacing renewable generation that is currently almost entirely serving the loads of utilities outside of the BPA Balancing Authority Area. The costs of Federal and state production incentives should be borne by a broad group of taxpayers and ratepayers receiving the wind power, not concentrated on smaller subsets of consumers with limited economic interest or benefits from the renewable generation.

Note that about 750 MW of wind capacity has been added to the BPA Balancing Authority Area since June 2010, to a current total of 3522 MW, and “as much as 3,000 MW of additional wind generation expected to come on line in the next few years” according to the report.

Posted in Electricity, Energy markets, Environmental policy | Tagged , , , | 1 Comment »

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BPA continues not to have a new plan for handling excess renewable power production

April 19, 2011

Michael Giberson

From The Oregonian, “BPA, wind developers argue over looming problem of too much power from renewables.”

In sum: “The BPA has backed away from formally implementing the wind-curtailment plan, a move that renewables advocates applauded. But it hasn’t come up with an alternative. “

The looming problem involves moments on the Bonneville Power System in which the combination of hydropower production and wind power production (along with a little nuclear power) is well in excess of consumer load and the ability to ship power out. BPA wants to tell wind operators to shut down in exchange for essentially free BPA power, and wind operators – who face the loss of production tax credit subsidies and other renewable energy payments say free isn’t enough. Wind operators want to be paid to back off of the system to compensate for the loss of these other income streams.

In short, the wind operators need a market-price system to ration the moments of excess supply in order to preserve at least some of the benefits of the non-energy price side payments they earn through production tax credits and renewable energy credits. A market-price system for coordinating supply would let the wholesale energy price go negative, essentially requiring generators to pay to deliver power to the system. BPA resists the idea of paying people to take its power, particularly when they must run the system to meet environmental or other requirements.

By the way, much of the boom in wind power development in Washington and Oregon is fostered by demand from California utilities seeking to comply with their state renewable portfolio standard obligation.

Related, from bloggers at Forbes.com:

We’ve discussed this issue a few times in the past, try this search of the KP archives: Bonneville + wind

Posted in Electricity, Energy markets, Environmental policy | Tagged , | 5 Comments »

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The continuing debate over wind power and net emissions

October 3, 2010

Michael Giberson

We’ve discussed the complicated relationship between wind power and the net reductions in greenhouse gas and other emissions here previously. Industry viewpoints come to expected conclusions – it is no surprise that the Colorado oil and gas industry promotes the view that wind is less special than claimed, nor that the American Wind Energy Association argues wind it better than the oil and gas industry says.

Among the things that makes the issue complicated is that the answer will depend on a lot of factors – the power system that the wind is connected to, what other generators are doing, how the power system chooses to manage wind power’s variability, just how variable the wind power is, and when it is generated. Answers can vary depending on how you frame the question and what data you turn to for analysis.

Into the mess wades F.P. Shioshansi, and he does a pretty good job of sorting through conflicting claims in a post at the EU Energy Policy Blog. For more, Shioshansi recommends Ross Baldick’s article in the recent USAEE Dialogue, “Wind and Energy Markets: A Case Study of Texas.”

Posted in Electricity, Energy markets | Tagged , | 3 Comments »

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Coasian bargaining on wind turbine noise

August 2, 2010

Michael Giberson

Preston McAfee and Tracy Lewis introduce Coasian bargaining in their economics textbook with the question, “Can I just bribe my neighbor to stop being annoying?”  The complementary question, perhaps asked by the neighbor in question, “Can I just bribe my neighbor to stop being annoyed (or at least not to complain about me)?”

The New York Times reports that a wind power developer working in eastern Oregon is offering some residents near a power project $5,000 in exchange for an agreement not to complain about the noise made by wind turbines.  Many times neighbors to wind power projects have filed nuisance complaints, and often these complaints get nowhere in part due to lack of clear property rights.  In the case of Oregon a state industrial noise ordinance gives some clarity to the property right, enabling Coasian bargaining to proceed.

RELATED:

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