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Why Wind Power Has Low Economic Value

Posted By Jonathan Lesser On December 18, 2012 @ 11:00 am In Featured | Comments Disabled

Michael Goggin, manager of transmission policy at the American Wind Energy Association (AWEA), posted a second response [1] to my report “Wind Intermittency and the Production Tax Credit: A High Cost Subsidy for Low Value Power [2].” As before, Goggin does not respond to my analysis, leaving my main point unanswered.

In my report, I analyzed four years’ of hourly production and load data and found that wind generation followed an uneconomic pattern, producing the most electricity when least needed and the least electricity when demand and market prices were highest.

Each megawatt-hour (MWh) of volatile and intermittent wind generation costs more to “integrate” into the electric grid than traditional fossil-generating and nuclear-generating resources, whose output is not subject to the vagaries of the weather. Thus, in addition to the wind production tax credit (PTC [3]), consumers and taxpayers are also paying other hidden costs to support wind.

Goggin states that integration costs for traditional resources are far higher than wind. That may be true in total: In 2011, wind generation accounted for about 3 percent of total generation in the U.S., whereas fossil and nuclear generation accounted for 87 percent. But on a per-MWh basis, wind is far more expensive to integrate onto the power grid.

There is no disagreement that the cost to integrate wind power increases as the amount of wind capacity increases. Goggin cites the 2011 Wind Technologies Report, which reports that integration costs are based on installed wind capacity, not energy production, as pictured in the chart on page 64. That same chart also shows estimates of wind-integration costs between $1/MWh and $12/MWh. Goggin uses the lowest estimate, which is based on data that is almost a decade old, when wind capacity was far lower and therefore with less integration expense.

This report estimated average integration costs for all resources at $2/MWh. Thus, Goggin asserts that it costs half as much to integrate intermittent wind on a per-MWh basis than conventional generation. But this defies logic and current experience.

Integrating resources whose output is volatile is more costly than integrating resources whose output can be scheduled as needed. Page 27 of the 2011 Eastern Wind Integration Study [4] states that “with large amounts of wind generation, additional operating reserves…are needed to support interconnection frequency and maintain balance between generation and load.”

Goggin ignores the main point of my analysis when he states that wind’s geographic dispersion “makes their aggregate electricity production less variable and more predictable.” But not according to an analysis of wind forecasting errors [5] published in the April 2012 Electricity Journal, which I referenced.

Moreover, the alleged benefits of geographic dispersal of wind that Goggin trumpets come with a huge cost from the additional transmission lines needed to deliver geographically dispersed wind to load centers.

So my question still remains: Why should U.S. taxpayers be forced to spend billions on subsidies [6] for such a low-value generation resource that has already been heavily subsidized for 35 years [7]? It began with the 1978 Public Utilities Regulatory Policy Act and has continued for 20 years with the PTC and mandated purchase requirements under state renewable portfolio standards. Today, the value of the wind PTC alone is greater than the average wholesale price of power in many markets.

If wind is as beneficial and low-cost as Goggin and AWEA claim, why does AWEA insist that wind continue to be subsidized through the PTC? Goggin does not say.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/12/18/why-wind-power-has-low-economic-value/

URLs in this post:

[1] posted a second response: http://www.awea.org/blog/index.cfm

[2] Wind Intermittency and the Production Tax Credit: A High Cost Subsidy for Low Value Power: http://www.continentalecon.com/publications/cebp/Lesser_PTC_Report_Final_October-2012.pdf

[3] PTC: http://blog.heritage.org/2012/06/21/wind-ptc-theres-no-free-lunch/

[4] Eastern Wind Integration Study: http://www.nrel.gov/electricity/transmission/eastern_renewable.html#ewits

[5] wind forecasting errors: http://www.sciencedirect.com/science/article/pii/S1040619012000553

[6] billions on subsidies: http://blog.heritage.org/2012/02/28/wind-subsidies-vs-oil-subsidies/

[7] subsidized for 35 years: http://blog.heritage.org/2012/08/01/wind-ptc-already-phasing-out-for-certain/

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