The Hidden Costs of Wind Power in California

Commentary

The Hidden Costs of Wind Power in California

Wind generation developers, not consumers, should foot the bill

Intermittent renewable energy sources like wind and solar are growing in use largely because of government regulations, favorable tax treatment and mandates. However, they impose hidden “integration” costs on the electrical grid that are shifted to California consumers and utility companies while the wind and solar developers benefit at their expense.

Gov. Brown recently signed into law Assembly Bill 2363, which improves accountability for solar and wind integration, but the law doesn’t go far enough. California should consider adopting Idaho’s approach and make wind generation developers pay their fair share of added costs.

The California Renewables Portfolio Standard Program requires utilities to purchase specified minimum quantities of electricity products from eligible renewable energy resources. But integrating intermittent renewable technologies like wind power results in significantly less efficient performance of fossil fuel facilities.

That’s because wind fluctuates in strength rather than providing a consistent and reliable stream of energy so electrical grid operators must rapidly cycle up and down other units to compensate. Much like your car in stop and go traffic, fuel use and emissions increase. Currently, utility companies must pay and then pass on these integration costs thereby increasing energy rates for consumers.

And these costs increase, per kilowatt-hour, at a rate faster than the growth in total wind generation. Taken together, these costs can double the apparent cost of wind power. Looking at just the apparent cost makes it seem wind is more cost-effective than other renewable energy sources.

The California Renewables Portfolio Standard Program currently requires the state’s Public Utility Commission to adopt rules for selecting the “least-cost and best-fit” renewable energy resources on a total cost basis. Assembly Bill 2363 will require the commission to adopt by December 31, 2015 a method for accurately determining the total costs, both direct and indirect, of integrating an eligible renewable energy resource. This will allow for an apples-to-apples comparison of energy sources that informs procurement, resulting in a more diverse, reliable, and cost-effective system.

“California has the nation’s most aggressive plans to promote renewable energy,” stated Assemblyman Brian Dahle, the bill’s sponsor. “As we push ahead, we need to protect ratepayers and be fair to businesses that have invested in renewable generation.”

However, the legislation falls short because it doesn’t hold wind developers responsible for the integration costs they impose. Instead, wind developers are paid the same amount the utility company would pay for energy from a source that doesn’t require added integration costs. That’s like selling something on eBay but making your neighbor pay the shipping cost.

California’s utility commission would do well to look at how Idaho regulators addressed the problem in their state.

“We find that the current mechanism for recovery of integration costs has resulted in under-collection of the actual costs required to integrate wind onto Idaho Power’s system,” according to an Idaho Public Utilities Commission press release. “That is not in the best interest of Idaho Power ratepayers because expenses to integrate wind that are not paid by wind developers are paid by consumers.”

So Idaho regulators recently adopted new rates to be charged wind generators who sell to Idaho Power Company to account for the utility’s expense of integrating wind power. They also approved a new method for calculating the wind integration charge under which wind developers will pay a rate that increases as the utility’s overall wind penetration level increases. It reduces the price paid for electricity sold to the grid, which should reduce consumers’ electric bills.

Adopting the Idaho approach would not threaten California’s Renewables Portfolio Standard Program. Some renewables, like biomass and geothermal, do not impose nearly as high integration costs as intermittent and unreliable technologies such as wind and solar. There may be a shift from wind to other types, but the aggregate amount would likely remain growing. Costs would be lower and reliability higher, even with growing amounts of renewables.

California should follow Idaho’s lead and reduce utility bills for consumers by making those responsible for integration costs pay those costs.

Tom Tanton is a senior fellow at Reason Foundation.

Mr. Tanton is a senior fellow at Reason Foundation. He is also president of T 2 & Associates, a firm providing consulting services to the energy and technology industries, and director of science and technology assessment with Energy and Environment Legal Institute, a national non-profit energy think tank.