Someone please explain the American Wind Energy Association’s funky electricity price arithmetic

About a month ago the American Wind Energy Association blogged: “Fact Check: New Evidence Rebuts Heartland’s Bogus RPS Claims.” I’m scratching my head a bit trying to understand their so-called facts. The big claim from AWEA:

The eleven states that produce more than seven percent of their electricity from wind energy have seen their electricity prices fall 0.37 percent over the last five years, while all other states have seen their electricity prices rise by 7.79 percent.

The blog post mentions DOE data, and the post links to a report the AWEA assembled titled “Wind Power’s Consumer Benefits” which cites U.S. EIA data on “Average Retail Price of Electricity to Ultimate Customers” (find the data here). The blog doesn’t explain their method and the report is only barely more helpful in that regard.

The AWEA report describes the price suppressing “merit order” effect of subsidized/low marginal cost wind energy, but that is a wholesale price phenomena that doesn’t include various other utility compliance costs, and anyway the AWEA is making claims about end consumer benefits from lower retail prices. The merit order effect only matters to consumers if consumers end up paying lower retail prices.

So I downloaded data from the EIA site and tried to calculate the retail percent change in price for every state over the last five years, then compared the eleven states that AWEA said produce more than seven percent of their electricity from wind energy to the remaining states and DC.

By my simple average, prices in the 11 “wind states” were about 18.8 percent higher in December 2013 than they were in December 2008; prices in the 39 other states and DC were about 5.7 percent higher in December 2013 than they were in December 2008. Now maybe AWEA is doing a weighted average by kwh sold or something different than my straightforward calculation, but they don’t explain it and I can’t reproduce it.

Can you?

The price data from December 2008 and December 2013 for the eleven “wind states” and “Avg-All Others” are:

State Dec-08 Dec-13 Percent change
Iowa          7.10          7.77 9.4%
Kansas          7.01          9.19 31.1%
Minnesota          7.66          9.27 21.0%
North Dakota          6.35          8.03 26.5%
South Dakota          6.93          8.57 23.7%
Oklahoma          6.55          7.14 9.0%
Texas        10.85          8.77 -19.2%
Colorado          8.01          9.48 18.4%
Idaho          5.97          7.91 32.5%
Wyoming          5.68          7.71 35.7%
Oregon          7.24          8.61 18.9%
Avg-All Others        10.60        11.19 5.7%
* Prices are cents/kwh

I can’t help but notice that only one of the 11 wind states (Texas) saw a decline in prices over the time period, and the other 10 wind states actually saw prices increase from December 2008 to December 2009 faster than the overall average of the other states.

So what kind of funky AWEA arithmetic turns (mostly) larger retail price increases in the 11 states into a big consumer benefit?

NOTE: By the way, a sophisticated attempt to address the questions of wind power’s consumer benefits-if any on net-would look at a lot more information than simple average retail rates by states. I was trying to engage the debate on the level presented and even at this simple level of analysis I can’t tell how they got their numbers.

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6 thoughts on “Someone please explain the American Wind Energy Association’s funky electricity price arithmetic

  1. There was a time I would have had all of this data at the ready, but I don’t keep up with it like I used to (when it was part of my then-job to do so). However, without looking at the monthly data (from EIA-826), first I would say that I would never draw any conclusions about average prices going month-to-month, i.e., December-to-December. There is a lot of month-to-month variation that I would usually average out by resorting to 12-month averages. That’s a matter of taste, though, because trends in underlying factors like gas prices can be observed to impact monthly average electricity prices in some markets, like TX that is mostly gas-fired. The big reduction you’ve calculated for TX is probably more related to gas price than to wind, consequently mid-2008 was the high point for average retail in TX, according to EIA-826 data (which I pulled while typing).

    Looking further, it appears that averaging all of these states together (adding the sales and revenues, then dividing) does show a slight overall decline in average retail rates, but only because TX is averaged in. Texas has enough sales to dominate the average. If you remove TX from the group, the remaining “wind states” increase steadily, as you’ve observed. So, the magic is choosing the 2008 high point as a starting point, then averaging TX in with the other wind states.

  2. Forbes recently had this article:
    Wind Industry Study: Electricity Prices Skyrocketing In Largest Wind Power States
    “A newly published paper by the American Wind Energy Association illustrates that electricity prices are rising more than four times the national average in nine of the 11 states with the most wind power consumption. In Texas, the only one of the 11 states with significantly declining electricity prices, deregulation rather than wind power is causing the decline in electricity prices. The findings are a huge blow to advocates of renewable power mandates and wind power subsidies.”
    And it goes on from there.
    http://www.forbes.com/sites/jamestaylor/2014/02/27/wind-industry-study-electricity-prices-skyrocketing-in-largest-wind-power-states/

  3. fORBES: Wind Industry Study: Electricity Prices Skyrocketing In Largest Wind Power States
    “A newly published paper by the American Wind Energy Association illustrates that electricity prices are rising more than four times the national average in nine of the 11 states with the most wind power consumption. In Texas, the only one of the 11 states with significantly declining electricity prices, deregulation rather than wind power is causing the decline in electricity prices. The findings are a huge blow to advocates of renewable power mandates and wind power subsidies.”
    http://www.app.com/article/20140325/NJNEWS/303250040

  4. I would suspect that AWEA used wholesale power rates, rather than retail. Wholesale LMPs quite probably are depressed by low-marginal-cost/subsidized wind power. At the retail level, when you add the costs of the various REC and related requirements, as well as the infrastructure cost of the additional transmission wind usually requires, back in, things doubtlessly look less favorable, even though it is the more appropriate comparison. The true cost picture is, of course, even worse once you add in the taxpayer costs of the wind ITC and PTC. But I would not be surprised to see a trade association use the most favorable figures, even if they are the most misleading,

  5. One additional thing worth noting is that a couple of those states have a material amount of hydro power… and I don’t think it’s rained since the beginning of the study time frame.

  6. The “eleven states that produce more than seven percent of their electricity from wind energy” claim of the AWEA is being spread thoughtlessly by industry supporters. Here the TriplePundit blog offers a blog post which is not much more than a summary of the wind-related elements in an ACORE report — ACORE is a renewable energy association of associations, the American Wind Energy Association is an ACORE member, and AWEA supplied the wind energy related section of the ACORE report now presented as the good news about wind power.

    This quote, essentially identical to the one I reproduced above, is presented without criticism:

    “The 11 states that produce more than 7 percent of their electricity from wind energy have seen their electricity prices fall by 0.37 percent over the last five years, while all other states have seen their electricity prices increase by 7.79 percent over that period. This is clear evidence for wind energy’s impact on keeping consumers’ electricity prices down.”

    See Andrew Burger, “Wind Power Is Reducing Electricity Rates; Pays Back Tax Credit 17 Times Over,” http://www.triplepundit.com/2014/04/wind-power-reducing-electric-rates-pays-back-tax-credit-17-times/, April 7th, 2014.

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