Obama Administration Report Overstates Wind Power’s Potential, Understates Costs and Limitations

Commentary

Obama Administration Report Overstates Wind Power’s Potential, Understates Costs and Limitations

Cost of wind power generation more likely to fall if wind is forced to compete in the market, far less so if it continues to receive subsidies

The U.S. Department of Energy just released a report in which it claims that consumers and the environment would benefit from increasing the proportion of electricity derived from wind power. As the White House press release puts it:

“The report shows that with continuing technological advancements, cost reductions, and siting and transmission development, the nation can deploy wind power to economically provide 35% of our nation’s electricity and supply renewable power in all 50 states by 2050.”

The “continuing technological advancements” and “cost reductions” mean the White House’s estimate is based on hope – hope that some as-yet unimagined future technology will change the economics of wind power, making it more cost effective than fossil fuel-based generation. That’s not impossible – but it is very unlikely. And hope without change can be both costly and unpleasant.

A 2012 report from Reason Foundation examined the economics of wind power as it exists, not the one we hope for. The study found it isn’t economically feasible to expect wind generation to produce more than 20 percent of operating electricity capacity, and even that is stretching it. The Department of Energy study assumes that the 35 percent capacity (up from about 4.5 percent today) would be reached by some combination of “low wind costs” and/or “high fossil fuel costs.”

However, as the Reason Foundation study points out, expanding wind penetration beyond about 10 percent requires a significant increase in the amount of available “spinning reserve” – instantly available power generation from an alternative source that can be brought online whenever the wind is too strong or too weak to supply enough power into the grid. That need for backup increases the capital costs of wind power because the spinning reserve generating capacity must be available even if it is not being used. In addition, since the spinning reserve is likely to be in the form of natural gas (because it is the lowest cost source of power and the one that can by brought online most quickly), the cost of fossil fuels has a much less significant impact on the cost competitiveness of additional wind generation.

The White House also claims that the expansion of wind power would result in “more than 500 U.S. manufacturing companies across 43 states,” and thereby “boost America’s competitiveness, help launch new businesses across the country, and secure the future of thousands of U.S. manufacturing jobs.”

The installation of 11 gigawatts of wind generation capacity per year – which is what the Department of Energy report estimates is necessary to achieve 35 percent by 2050 – would almost certainly require some new manufacturing in the U.S., with associated new jobs. But such a massive investment (reaching $70 billion in 2050) would divert hundreds of billions of dollars away from other investments that would have created other jobs.

Wind energy is obviously not the only possible investment that could be made with those billions and on the basis of our current knowledge it is almost certainly not the best and most productive investment. Imagine some of the other investments that could be madebut might not be made because the money is being spent on wind turbines:

  • New drugs to prevent, alleviate, or cure diseases ranging from neurodegeneration to heart disease to cancer;
  • New agricultural technologies that enable more and better food to be produced on less land, improving nutrition while reducing the impact on wild species;
  • New materials that enable the production of better, stronger, less expensive vehicles, buildings, computers, and all manner of other devices.

And that is just a small selection of innovations that are easily imagined because they are similar to innovations that have recently taken place. There are surely many other innovations that will occur but which are more difficult to imagine. Many investments in such innovations have the potential for far higher returns, generating greater benefits to a larger number of companies, and providing more and better jobs.

Simply asserting that investing in wind generation will yield the benefits claimed without considering other investments that could create greater benefits is economically naïve. Decades of evidence shows that government directed investment tends to yield lower returns, resulting in lower rates of growth, and generates worse and lower paying jobs than private sector investment. There is no empirical reason to think government is suddenly going to improve on this record and much reason to think that it will not.

The Obama administration further claims that:

“Today, average wind energy costs nationally are approaching cost-competitive levels. Backed by stable policies including the production tax credit and the EPA’s Clean Power Plan, costs will continue to drop as the industry scales up and innovates.”

Taking into account the capital costs of wind’s spinning reserve, wind energy is not cost-competitive with fossil fuels by a wide margin – even the Department of Energy’s own estimates put the levelized cost of wind at 20 percent higher than natural gas. While some wind projects may be cost-competitive, many are only proceeding because of the production tax credits and state renewable energy mandates imposed by government. In other words, taxpayers and energy consumers are being forced to subsidize the owners of wind generators.

The White House asserts, “Wind is anticipated to provide nearly $280 billion consumer savings by 2050.” But even under its wind power scenarios, the White House study says the cost of electricity is expected to rise at least until 2030: In other words, the White House wants us to incur almost certain costs for the next 15 years in return for highly uncertain benefits – benefits that are entirely dependent on the development of new technologies that dramatically reduce the cost of wind generation – sometime after 2030.

The White House goes on to list a series of “key findings.” It begins with the claim that “Wind power could help America combat climate change by avoiding more than 12.3 billion metric tons of carbon pollution cumulatively by 2050, equivalent to avoiding one-third of global annual carbon emissions.”

This is both confusing and highly implausible. It is confusing because it compares a single year of global emissions with 35 years of emissions reductions from the US. Even if the absolute reduction in emissions were accurate, it would amount to a reduction of less than one percent of global emissions annually. But this is likely a vast over-estimate: Reason Foundation estimates that at most wind could reduce carbon emissions from electricity generation by 18 percent, which would amount to around 100 million tons per year, or 3.5 billion tons by 2050.

But the strange claims don’t end there. The White House continues: “Wind energy could save approximately 260 billion gallons of water by 2050, by side-stepping the water-intensive processes of conventional energy production. At deployment levels examined in the report, the nation’s electric power sector could consume 23% less water.”

That sounds great, but again ignores alternative solutions. Where water use in the electric power industry is a major concern (for example, in more arid parts of the U.S.), there are existing technologies that could be used to reduce water use far more cost effectively than by switching to wind generation.

Finally, the Obama administration asserts that:

“This growth in wind power could lead to approximately $108 billion in savings in healthcare costs and economic damages. This estimated saving is made possible through cumulative reductions in air pollutants, including sulfur dioxide, nitrogen oxides and fine particulates that could otherwise cause nearly 22,000 premature deaths from respiratory ailments and other diseases by 2050.”

Reducing the health effects of electric power generation is desirable. But as Reason Senior Fellow Tom Tanton and I have pointed out in relation to an assessment of state renewable portfolio standards, most if not all the reduction in damaging health effects claimed by the White House would happen anyway, as a result of power generation companies complying with existing regulations. In addition, it is likely that generation will continue to shift to natural gas, which is a far cleaner fuel than coal. Over the past decade, the proportion of electricity produced from natural gas has nearly doubled and now stands at about 30 percent. If that trend – which has been driven almost entirely by the lower total cost of new gas generation – continues then emissions will fall even further without any new regulatory intervention. In other words, most of the health improvements and associated $108 billion in alleged savings are illusory.

It is quite possible that the costs of wind power generation will continue to fall as the White House hopes. But that is more likely if wind is forced to compete in the market and far less so if it continues to receive subsidies.

Julian Morris is vice president of research at Reason Foundation. This article originally appeared at RealClearMarkets.

Julian Morris is vice president of research at Reason Foundation, a non-profit think tank advancing free minds and free markets.