By NORMAN ROGERS
Renewable electricity, mostly wind power, is useless in every dimension. It is extremely expensive but is made to look cheap by hiding an 80% subsidy. It is an exorbitantly expensive method for reducing CO2 emissions. Industry lobbyists and sinister environmental organizations, like the Sierra Club, have manipulated public policy to milk taxpayers and electricity users for billions.
According to the Sierra Club, wind power electricity is economically viable without government assistance. This pronouncement of the Sierra Club has no relationship to reality. For the Sierra Club the most worrisome thing about wind power, something they avoid mentioning, is that the propellors kill birds.
The government subsidizes wind power. Some of the subsidies are upfront. Others are hidden in tax rules or created by using law to change the bargaining balance between wind power providers and electric utilities. The biggest federal hidden subsidy is “tax equity financing”, a masterpiece of accounting obscurantism. The biggest state level subsidy is renewable portfolio laws. These laws require the use of renewable energy to generate electricity and require ever increasing proportions of renewable energy in the electric grid. Wind and solar are the main types of renewable electricity. These laws may be the biggest subsidy, although their subsidy nature is obscure and probably invisible to the naïve legislatures that passed them.
Renewable portfolio laws that force utilities to purchase renewable power in ever-increasing amounts makes the market for renewable power a sellers’ market by increasing demand. Only a limited number of big companies with experience and financial resources can build massive, utility-scale wind or solar farms. Given the competitive calculus, these companies are only willing to build plants with long-term contracts that reduce risk. Typically, there are 20- or 25-year contracts called power purchase agreements or PPA’s. A wind farm with a guaranteed contract to purchase all the power generated for 25 years becomes something more like a treasury bond than a business. Frequently the utility is even obligated to pay for ghost power that was not generated because the grid could not accept the amount of power available in certain circumstances.
Having guaranteed long-term contracts signed before a shovel of dirt is turned changes everything. The wind farm owner can accept a far lower return on his investment because he has less risk. Further, the wind farm can be flipped to an infrastructure investment fund that specializes in long-term, low-risk investments. That is the exit strategy for wind farm owners.
The risks are borne by the utilities and ultimately by the government, the ultimate backer of electric utilities. The utilities tend to be enthusiastic believers in wind and solar, not because those are good solutions or economic, but because the utilities are willing to agree to any irrational nonsense that enhances profits. They are empowered by public utility commissions to pass exorbitant costs along to their customers.
Due to the complicated and deceptive nature of government subsidies it is difficult to directly compute the size of the subsidy. Here we use an alternate method of estimating the subsidy. We look at what price a wind power company, operating without subsidies or long term contracts, would have to get for its electricity to make a reasonable profit. We compare that to how much an electric utility would be willing to pay for the power, absent government compulsion. If the price the wind power company needs for the wind power is greater than what a utility would be willing to pay, then the difference must be made up with a subsidy, either from the government or from electricity users.
Wind power is intermittent power. It waxes and wanes with the wind. For that reason, a utility cannot count on wind power. The utility must have power plants it can count on to keep the lights on. It only makes sense to purchase wind power when the cost of the wind power is less than the cost of alternative power sources available to the utility. Due to its sporadic nature, wind can never replace reliable, dispatchable plants. Wind can only sporadically substitute for reliable plants in those temporary periods when wind is cheaper than using the cheapest alternative source of electricity.
What price does a wind power company have to get for wind power to make a reasonable profit? We estimate if a wind power company builds a one-billion-dollar wind farm it needs $154 million per year from power sales. Of the $154 million $20 million is for operating expense and the rest is net revenue. Assuming the wind farm has a life of 20 years this corresponds to 12% interest on the billion-dollar investment. That is a reasonable return for entering a highly risky business. But if the wind power company has a 20-year guaranteed contract to deliver power, the risk changes and 8% interest may be profitable.
A $1 billion wind farm would have a nameplate capacity of 400 megawatts. The nameplate capacity is the maximum output power when there is sufficient wind. But since the wind isn’t always blowing strong, the average power would be typically be around 38% of 400 megawatts or 152 megawatts. This amounts to 1,337,000 megawatt hours per year. To meet the 12% interest rate goal the electricity would have to sell for the high price of $115 per megawatt hour. To meet an 8% goal, in the case of a guaranteed long-term contract, the company would need about $75 per megawatt hour.
The main competitor to wind power will typically be natural gas generation. The marginal cost of generating electricity with natural gas depends on the cost of the gas and the efficiency of the generating plant. That cost is typically $20 per megawatt hour.
In an unsubsidized world the wind power company needs $115 per megawatt hour, but the electric utility would only be willing to pay $20 per megawatt hour. The difference must be made up by a subsidy from taxes or higher electric rates. The subsidy required is about 83% of the cost of wind power, or $95 per megawatt hour. We offer this as a fair estimate of the wind power subsidy.
Notice that we are comparing the full cost of wind power with the marginal cost of natural gas power. The marginal cost is only a function of the cost of gas and the efficiency with which gas is converted to electricity. The capital cost of the natural gas plant is rightfully attributed to the core generating infrastructure and must be paid regardless of the presence of wind power. Typically the advocates of wind power mistakenly include the capital costs of natural gas in their comparisons, making natural gas seem more expensive.
The U.S. has advanced wind power foolishness to the point where about 10% of our electricity comes from wind. Assuming a subsidy of $95 per megawatt hour, the U.S. is wasting about $41 billion every year on subsidies for wind power, which is around $300 per household annually.
Texas has gone overboard with wind power. Their massive wind system requires an annual $10 billion subsidy. That amounts to nearly $1000 per household in Texas. The subsidy money comes from federal taxes or increased electricity prices. Other states are subsidizing Texas’ wasteful spending via the federal taxes they pay.
Is Wind Power a Good Way to Reduce CO2 Emissions?
The premise behind renewable power is that it does not generate CO2 and thus helps alleviate the supposed climate crisis. In order to eliminate the emission of a metric ton of CO2 by substituting wind power for natural gas power, one must generate about 3.5 megawatt hours of electricity by wind rather than natural gas. The subsidy required will be about $330 per metric ton of emissions eliminated. But one can purchase a carbon offset that reduces the same amount of CO2 emissions, in the carbon offset market, for about $10 per ton. $330 is an exorbitant price for a carbon offset.
There is little point in reducing CO2 emissions because the Chinese and Indians are rapidly increasing emissions by building coal generating plants. The effect of U.S. wind power on reducing emissions is negligible compared to rapidly increasing world emissions.
The very idea of reducing CO2 emissions is a dubious quest. The science supporting climate fear is speculative. It is not speculative science that increasing CO2 in the atmosphere greens the Earth and increases agricultural productivity. Plants need CO2. They are hungry for CO2.
The Non-Economies of Scale
As one increases the amount of wind power in the electric grid a problem starts to emerge. Wind power is peaky. If all turbines are at maximum output the amount of power is about 2.5 times the average. If wind power on average is more than 20% of the electricity there start to be episodes when there is more wind power than the grid can absorb.
Then the only choice is to curtail the wind output or store the excess electricity for later use, generally in batteries. In either case the cost of the wind power is increased. As a practical matter it is harder to reduce output from a coal plant to make room for wind power. In the case of a nuclear plant, it makes no sense because the cost of nuclear fuel is extremely low, perhaps 4 times less than natural gas. For this reason state renewable portfolio laws requiring 50% or 60% renewable electricity result in very expensive batteries added to the wind or solar farms.
Kill the Wind Industry
It’s difficult for politicians, or anyone, to admit they’ve been conned. It’s time that everyone admits it and we kill the wind power industry.
Norman Rogers is a retired entrepreneur. He has written many articles on climate and energy as well as the Amazon book Dumb Energy. This article was originally published by RealClearEnergy and made available via RealClearWire.
