Vinalhaven Wind Power: bad policy, bad economics

One of the most predictable and least productive criticisms we hear is along the lines of: at a time of climate change, why do a few people (i.e., neighbors of the industrial wind turbines on Vinalhaven) get to have such a large voice? That point of view– isolating the Vinalhaven neighbors from the wider community– confuses two separate issues. First, like any citizen of the United States we are entitled to due process and the rule of law. Second, industrial wind is inefficient, uneconomic, and exists because private shareholders are enriched by huge government subsidies. That is true of the economics underlying the wind turbines on Vinalhaven, and it should be shared with all the teachings of wind power.  “A Look at Some of the Obstacles Facing Wind Energy in the U.S.” is along the line of pulling down the curtain on the bad economics of wind power. (click read more, for the full article) Also, Robert Bryce writes on December 21, 2011: “Why The Wind Industry Is Full Of Hot Air And Costing You Big Bucks.” We share that article, too.

A Look at Some of the Obstacles Facing Wind Energy in the U.S.

Written by Gail Tverberg, on the blog oil price.com
Friday, 06 January 2012 00:05

In the United States, we have been working on scaling up wind energy but not getting very far. In 2010, wind energy supplied only 2.3% of electricity purchased.

Such slow progress seems strange for a product that seems to have such great promise. It can reduce CO2 emissions. It doesn’t require fuel. It is at least partly US made. The popular view is that it could eventually replace gasoline, but that view is very optimistic because electricity is very different from gasoline, and because of the scalability issue.

US Energy Consumption
Figure 1. Wind energy (dark green) is barely visible in a graph of US energy consumption by source. Based on EIA data.

In this post, I discuss a few of the obstacles facing wind energy in the United States, and their implications for the expansion of wind energy.

Obstacle 1: Wind energy is dependent on large subsidies.

According to the EIA’s report, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, wind energy received subsidies of $4.986 billion from the federal government for Fiscal Year 2010. This amount is equal to approximately half the cost of new wind power installed during that period. State and local subsidies would be in addition. (The US Wind Energy Association shows that 6034 megawatts of new capacity was installed between October 1, 2009 and September 30, 2010, so the subsidy per megawatt was $826,318. This compares to an average cost per megawatt of about $1.4 million, excluding construction and connection costs.)

The wind energy’s largest subsidy, the Production Tax Credit, is set to expire on December 31, 2012, unless Congress acts to extend it, so there is now a big rush to get orders filled before that date. A study by Navigant Consulting forecasts a large drop in wind investment, if the Production Tax Credit is not extended (Figure 2).

Annual Investment in Wind Energy
Figure 2. Annual Investment in Wind Energy in $ Billion, according to Navigant Consulting.

Needless to say, the US Federal Government is not flush with money for subsidies, so there is the possibility that subsidies will not be renewed or will be cut back.

Obstacle 2: Wind energy is of a lower quality than electricity produced by fossil fuels and by nuclear energy.

Wind blows when it chooses, which is often not when it is needed most. In theory, this problem could be resolved with robust long-distance transmission of electricity and with adequate electrical storage, but in the US, these are not available. This means that even in locations where wind energy makes up a relatively large share of the fuel mix, other types of generations must be available to supply almost the full level of demand, if the wind is not blowing.

As a result, the role of wind energy is fairly limited.  What wind energy does is permit electricity generating plants, particularly those fueled by natural gas, to use less fuel. Consequently, the price of wind energy tends to compete with the price of fuel, rather than with the wholesale price of electricity.

Comparison of Electricity Prices
Figure 3. Comparison of prices of wind generated electricity with electricity generated by other means, showing that wind energy prices tend to be considerably lower, because of its lower quality.

From US Department of Energy report, “Annual Report on U. S. Wind Power Installation, Cost, and Performance Trends: 2007.”

Consequently, without mandated feed-in tariffs, the sales price of wind-generated electricity tends to fall below the wholesale price of other types of electricity (Figure 3). This lower price for wind generated electricity helps explain some of the need for subsidies.

A related issue is the confusion caused by a comparison of the “levelized cost of wind” with the levelized cost of other types of generation, such as is shown in Figure 4 by the US Energy Information Administration.

Cost of New Electricity Generation Resources
Figure 4. EIA’s exhibit showing Estimated Levelized Cost of New Electricity Generation Resources, from Annual Energy Outlook 2011.

Because of the lower quality of wind, Figure 4 represents an “apples to oranges” comparison, if one makes the standard comparison of amounts in the last column. Instead, since wind energy only replaces fuel, what needs to be compared is

• “Total System Levelized Cost” for wind relative to
• “Variable O&M (including fuel)” for other sources of production

In Figure 4,  the Total System Levelized Cost of Wind is 97.0, and of Wind-Offshore is 243.2. These might be compared with the Variable O&M (including fuel) of coal (Advanced coal is 25.7) or of natural gas (Conventional Combined Cycle is 45.6), for example. On this basis, wind energy comes out badly, and is one reason it requires such high subsides.

Another related issue is that differences in fuel quality can lead to misleading EROEI indications. At least some petroleum is used in manufacturing, transporting, installing, and maintaining wind turbines, but the energy that is provided as an output is mostly replacing natural gas, and perhaps some coal. Coal and natural gas are much cheaper (and more abundant) than oil, so even a small input/output substitution in this direction can quickly hurt the economics of the process.

Obstacle 3: Natural gas is now very cheap in the US, and there is a huge amount of natural gas generating capacity already built.

Since wind energy tends to compete with the cost of fossil fuels used to produce electricity (mostly natural gas and coal in the US), a low price of natural gas is a problem because even greater subsidies will be required for wind energy to be competitive.

Furthermore, natural gas generating capacity is no issue. The current natural gas average gas capacity factor is 28%, suggesting that US natural gas generation could be tripled, without requiring an increase in generating capacity. This excess generating capacity was built partly because natural gas is good for load balancing (and electricity prices tend to be high to meet temporary demand spikes), and partly to meet an expected rise in electricity demand that never materialized because of recession in recent years.

Obstacle 4: In the US, we do not have an electrical grid that can provide very much long distance transport of electricity, and there are several reasons why changing this situation is very difficult.

Growth in wind energy requires very good long distance transmission capability, partly because wind resources are often located a long way from prospective users, and partly because the variable nature of wind can be “evened out” if wind energy is shared over a large area. Unfortunately, the US electrical system has grown up under a system where each locality has been expected to generate its own electricity. Under such a system, electrical transmission from city to city was originally designed to handle only occasional emergencies, and thus is very limited.

The way the US electric transmission system was set up produces many anomalies. Electrical rates vary greatly from state to state. We needlessly burn large amounts of oil transporting coal to where it will be burned for electricity, rather than burning it near where the coal is mined, and then transporting the electric power over transmission lines.  Nuclear-fueled power plants are sometimes located near large cities.

The problem is very difficult to fix for many reasons. Any improvement in electric transmission would tend to even out electricity rates, but this would be to the detriment of customers who currently have low electric rates. To the extent that new transmission costs more, and these higher costs are charged back in electric rates, such a change could result in higher electricity costs for more than half of the population–something most politicians would find unacceptable.

If better transmission were readily available and free, no one would want to build a power plant in their back yard, making it even harder to site new power plants than it is now.

Another issue is that a good mechanism for paying for the installation and maintenance of new long distance transmission lines has not been established. Under current procedures, a determination must be made as to which electric generating companies will benefit from new transmission lines, and the costs allocated among the beneficiaries. The government in the past has not funded long distance electrical transmission. No one really “owns” the long distance lines.

The only partial fix I can see would be to create a separate organization to build and maintain a few new long-distance transmission lines. Wind energy and other users seeking to use these lines would be charged for the use of these lines, similar to a toll road. The likely result would be more coal fired-power plants being built near these lines, because wind usage by itself could not support these lines. Even this arrangement would likely require a change to current laws. The net effect might be more CO2, rather than less.

The cost of long distance electric transmission is likely to be fairly high–at least several cents per kWh, for wind energy transported over long distances. Over time, the price can be expected to rise as the price of oil rises. Some maintenance may become very difficult, such as that currently done by helicopters in remote locations.

Obstacle 5: A high proportion of funding for wind energy is up front.

Oil, coal, and gas all started out as fairly high EROEI investments, and much of the investment took place as the fuel was extracted. In such a situation, the investments threw off a high level of profit which could be used to fund further investment.

Fossil fuels are gradually shifting away from this model, with higher up front investment, and lower profit available to fund further investment. Wind turbines represent the extreme end of this continuum with most of the investment up front, and the return trailing many years behind.

As a result of this shift in timing, it is becoming more difficult to fund projects with huge up-front investment. In the “good old days,” we had the low price of fossil fuels which made other investments easier to afford. We also could count on a being always able to add more debt, but we are reaching limits on sustainable debt. I wrote two posts on The Link Between Peak Oil and Peak Debt (Part 1 and Part 2). More recently, I talked about how Net Savings is dropping dramatically in the US, so that non-debt sources of funding are also disappearing.

Us Investment and Savings Ratios
Figure 5. US Savings and Investment Ratios, based on US Bureau of Economic Analysis Data.

The net of all of this is that if we are reaching limits with respect to finite resources, it is going to be increasingly difficult to fund projects that require large up-front investment and provide a return later. We will likely have to give up some investments we really need (such as replacing worn out roads, pipelines, and school buildings) in order to ramp up investments in projects that require large front-end funding, like wind turbines.

Obstacle 6: Adding wind energy to the electric grid adds complexity which may be difficult to manage with declining resources.

The job of balancing supply with electrical demand and keeping all sources of electricity “in synch” becomes more difficult, as more variable sources of supply come on line. While it is theoretically possible to find technical solutions to these issues, it is not clear that we will in practice.

Furthermore, changes related to the Smart Grid will also add to the stress to the system, since the Smart Grid is designed to operate the grid at closer to its theoretical capacity. These enhancements add efficiency to the system, but reduce resilience.

The grid with the new enhancements will work until at some point it doesn’t work–for example, an unplanned event causes a major failure within the system, or a needed system upgrade is too expensive to afford, or a replacement part from overseas is unavailable. Hopefully, failures of this type will be temporary and local, but if resources are limited, the time may come when the high cost of maintaining the system becomes unsustainable.

Further Thoughts about Wind Energy

I have not been able to touch on more than a few issues in this post.

One of the big issues with wind is that its benefits have been oversold. If we are already having trouble with the electrical grid not being able to accept more wind energy in popular wind-generating areas when wind energy constitutes only 2.3% of total electricity supply, then wind energy is going to be difficult to scale up quickly. The issues I point out in this article suggest that the cost problem is still large, and the fixes needed to add long-distance transmission are likely to make the cost problem even worse.

Many people assume wind can do everything–replace gasoline, run our cars and trucks, and allow us to continue business as usual, without worries about CO2 or about oil depleting. We are a long way from making a dream like this happen. We would need advances in electric vehicles and trillions of dollars of investment to even partially make a dream like this happen.

Some people hope that wind energy can somehow allow business as usual to continue almost indefinitely, after oil and gas deplete, and after we decide to stop using coal. I can’t see this happening. We need fossil fuels to make wind energy, and we need fossil fuels to transport wind turbines to the locations where they are to be installed. We also need fossil fuels to repair wind turbines and to maintain transmission lines.

I expect that at some point grid problems will become overwhelming, so at least the long-distance portion of the grid will be lost. It is possible that adding more wind energy to the grid will make that date come sooner, rather than later, because of the complexity issues I mentioned. Unless the limiting factor on the life of the electric grid is the amount of coal and natural gas available, and wind energy somehow delays running out of these, I have a hard time seeing how wind energy will make the electric grid last longer.

There are so many obstacles for wind to overcome in the US that I am not sure that we should even try to push for higher wind penetration levels. The only exception might be in areas where wind energy is cheap to produce and the grid can readily accept the electricity.

Since the world is finite, there is a good chance that at some point we are going to have to get along with less electricity as well as less oil. Instead of focusing on delaying the inevitable, perhaps we should start thinking about preparing people for simpler lives that use less energy of all types. Such an approach might solve multiple problems at once–too much CO2, too little oil, and too little capital to tackle all the problems that need to be tackled at once.

By. Gail Tverberg

Gail Tverberg is a writer and speaker about energy issues. She is especially known for her work with financial issues associated with peak oil. Prior to getting involved with energy issues, Ms. Tverberg worked as an actuarial consultant. This work involved performing insurance-related analyses and forecasts. Her personal blog is ourfiniteworld.com. She is also an editor of The Oil Drum.

 

December 21, 2011

Robert Bryce

(Reprinted from Foxnews.com) The American Wind Energy Association has begun a major lobbying effort in Congress to extend some soon-to-expire renewable-energy tax credits. And to bolster that effort, the lobby group’s CEO, Denise Bode, is calling the wind industry “a tremendous American success story.”

But the wind lobby’s success has largely been the result of its ability to garner subsidies. And those subsidies are coming with a big price tag for American taxpayers. Since 2009, AWEA’s largest and most influential member companies have garnered billions of dollars in direct cash payments and loan guarantees from the US government. And while the lobby group claims to be promoting “clean” energy, AWEA’s biggest member companies are also among the world’s biggest users and/or producers of fossil fuels.

A review of the $9.8 billion in cash grants provided under section 1603 of the American Recovery and Reinvestment Act of 2009 (also known as the federal stimulus bill) for renewable energy projects shows that the wind energy sector has corralled over $7.6 billion of that money. And the biggest winners in the 1603 sweepstakes: the companies represented on AWEA’s board of directors.

An analysis of the 4,256 projects that have won grants from the Treasury Department under section 1603 over the past two years shows that $3.37 billion in grants went to just nine companies — all of them are members of AWEA’s board. To put that $3.37 billion in perspective, consider that in 2010, according to the Energy Information Administration, the total of all “energy specific subsidies and support” provided to the oil and gas sector totaled $2.84 billion. And that $2.84 billion in oil and gas subsidies is being divided among thousands of entities. The Independent Petroleum Association of America estimates the US now has over 14,000 oil and gas companies.

The renewable energy lobby likes to portray itself as an upstart industry, one that is grappling with big business and the entrenched interests of the hydrocarbon sector. But billions of dollars in 1603 grants – all of it exempt from federal corporate income taxes – is being used to fatten the profits of some of the world’s biggest companies. Indeed, the combined market capitalization of the 11 biggest corporations on AWEA’s board – a group that includes General Electric and Siemens — is about $450 billion.

Nevertheless, the clock is ticking on renewable-energy subsidies. The 1603 grants end on December 31 and the renewable-energy production tax credit expires on January 1, 2013. On Monday, AWEA issued a report which predicted that some 37,000 wind-related jobs in the US could be lost by 2013 if the production tax credit is not extended.

But the subsidies are running out at the very same time that a cash-strapped Congress is turning a hard eye on the renewable sector. The collapse of federally backed companies like solar-panel-maker Solyndra and biofuel producer Range Fuels, are providing critics of renewable subsidies with plenty of ammunition. And if critics need more bullets, they need only look at AWEA’s board to see how big business is grabbing every available dollar from US taxpayers all in the name of “clean” energy. Indeed, AWEA represents a host of fossil-fuel companies who are eagerly taking advantage of the renewable-energy subsidies.

Consider NRG Energy, which has a seat on AWEA’s board. Last month, the New York Times reported that New Jersey-based NRG and its partners have secured $5.2 billion in federal loan guarantees to build solar-energy projects. NRG’s market capitalization:  $4.3 billion.

But NRG is not a renewable energy company. The company currently has about 26,000 megawatts (MW) of generation capacity. Of that, 450 MW is wind capacity, another 65 MW is solar, and 1,175 MW comes from nuclear. So why is NRG expanding into renewables? The answer is simple: profits. Last month, David Crane, the CEO of NRG, told the Times that “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects.”

Or look at E.On, the giant German electricity and natural gas company, which also has a seat on AWEA’s board of directors. In 2010, the company emitted 116 million metric tons of carbon dioxide an amount approximately equal to that of the Czech Republic, a country of 10.5 million people. And last year, the company – which has about 2,000 MW of wind-generation capacity in the US — produced about 14 times as much electricity by burning hydrocarbons as it did from wind.

Despite its role as a major fossil-fuel utility, E.On has been awarded $542.5 million in section 1603 cash so that it can build wind projects. And the company is getting that money even though it is the world’s largest investor-owned utility with a market capitalization of $45 billion.

Another foreign company with a seat on AWEA’s board: Spanish utility Iberdrola, the second-largest domestic wind operator. But in 2010,  Iberdrola produced about 3 times as much electricity from hydrocarbons as it did from wind. Nevertheless, the company has collected $1 billion in section 1603 money. To put that $1 billion in context, consider that in 2010, Iberdrola’s net profit was about 2.8 billion Euros, or around $3.9 billion. Thus, US taxpayers have recently provided cash grants to Iberdrola that amount to about one-fourth of the company’s 2010 profits. And again, none of that grant money is subject to US corporate income taxes. Iberdrola currently sports a market cap of $39 billion.

Another big winner on AWEA’s board of directors: NextEra Energy (formerly Florida Power & Light) which has garnered some $610.6 million in 1603 grants for various wind projects. NextEra’s market capitalization is $23 billion. The subsidies being garnered by NextEra are helping the company drastically cut its taxes. A look at the company’s 2010 annual report shows that it cut its federal tax bill by more than $200 million last year thanks to various federal tax credits. And the company’s latest annual report shows that it has another $1.8 billion of “tax credit carryforwards” that will help it slash its taxes over the coming years.

The biggest fossil-fuel-focused company on AWEA’s board is General Electric, which had revenues last year of $150 billion. Of that sum, about 25 percent came from what the company calls “energy infrastructure.” While some of that revenue comes from GE’s wind business, the majority comes from building generators, jet engines, and other machinery that burn hydrocarbons. The company is also rapidly growing GE Oil & Gas, which had 2010 revenues of $7.2 billion. GE Oil & Gas has more than 20,000 employees and provides a myriad of products and services to the oil and gas industry.

GE has a starring role in one of the most egregious examples of renewable-energy corporate welfare: the Shepherds Flat wind project in Oregon. The majority of the funding for the $1.9 billion, 845-megawatt project is coming from federal taxpayers. Not only is the Energy Department providing GE and its partners – who include Caithness Energy, Google, and Sumitomo — a $1.06 billion loan guarantee, as soon as GE’s 338 turbines start turning at Shepherds Flat, the Treasury Department will send the project developers a cash grant of $490 million.

On December 9, the American Council on Renewable Energy issued a press release urging Congress to quickly extend the 1603 program and the renewable-energy production tax credit, because they will “bolster renewable energy’s success and American competitiveness.”

But time is running short. Backers of the renewable-energy credits say that to assure continuity on various projects, a bill must be passed into law by March 2012. If that doesn’t happen, they are predicting domestic investment in renewable energy could fall by 50 percent. A bill now pending in the House would extend the production tax credit for four additional years, through 2017. The bill has 40 sponsors, 9 are Republicans. The bill is awaiting a hearing by the House Ways and Means Committee.

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