Fact check: Sorgo's Holly wildly exaggerates cost of wind power

29 October 2013 by Michael Goggin Michael Goggin

S. Michael Holly, the chairman of Sorgo Fuels & Chemicals, Inc., has a column on Energy Trends Insider claiming that wind power's costs in the U.S. are six times higher than accepted by authoritative sources. Mr. Holly's analysis contains a number of major errors which, taken together, account for his wild exaggeration.

Mr. Holly claims to be perplexed how wind energy’s $30-40/MWh costs in the U.S. can be so much lower than the claimed $100/MWh cost in other countries, yet the main reason is simple: the U.S. has world-class wind energy resources that make a typical U.S. wind turbine roughly 50% more productive than one in most other countries. In addition, the U.S. enjoys the cost reductions provided by abundant low-cost land and a wind energy manufacturing sector that produces more than 70% of a wind turbine’s value domestically, keeping transport costs low. Thanks to continuing technological advances as well as the creation of a domestic wind turbine manufacturing industry, the cost of wind energy in the U.S. has fallen by more than 40% over the last four years.

While U.S. wind energy does receive the federal production tax credit, the cumulative incentives provided to wind energy are a small fraction of the amount given to fossil and nuclear energy competitors. According to the Congressional Research Service, “For more than half a century, federal energy tax policy focused almost exclusively on increasing domestic oil and gas reserves and production.” A report by DBL Investors also found that in “inflation-adjusted dollars, nuclear spending averaged $3.3 billion over the first 15 years of subsidy life, and O&G subsidies averaged $1.8 billion, while renewables averaged less than $0.4 billion.” Even by the Nuclear Energy Institute’s own count, fossil and nuclear subsidies are many times larger than the total amount given to all renewables over the last 60 years. Similarly, the accelerated depreciation that Mr. Holly cites is available to nearly every energy source, and to most industries outside the energy sector as well.

Regarding the cost of reliably integrating wind energy onto the grid, Mr. Holly uses out-of-date estimates when more recent real-world data are available. Data from the Texas grid operator confirm that the additional power system reserves needed for obtaining almost 10% of its electricity from wind energy account for about 50 cents per megawatt-hour (MWh), which works out to about six cents out of a typical Texas household’s $140 monthly electric bill.[1] In contrast, other data indicate that the cost of reliably accommodating instantaneous outages at other power plants is forty times higher, at around $2.50 per monthly bill.[2] Thus, wind energy’s integration costs are far lower than those of conventional generators, completely undermining Mr. Holly’s argument. Similarly, the Midwest grid operator has said on numerous occasions that it has been able to reliably integrate 10,000 MW of wind generation without any discernible increase in its need for reserve generation. A study by utilities in Nebraska calculated that the whole region could reliably obtain 40% of its electricity from wind energy at an additional reserve cost of around 80 cents per monthly bill.

In reality, it is far more costly to integrate the unexpected and instantaneous failures of large fossil and nuclear power plants than to accommodate the gradual and predictable changes in wind energy output. All power plants fail from time to time and must work in concert to keep the power system reliable, so all power plants are always backed up by all other power plants through the use of flexible operating reserves. Grid operators use these reserves to accommodate all changes in supply and demand, including the constant fluctuations in electricity demand as well as changes in wind output. As demonstrated above, the fast-acting reserves for conventional power plant failures are far more expensive than the slow-acting reserves for which wind energy modestly increases the total system need, completely contradicting Mr. Holly’s argument.

Mr. Holly’s attempt to add a “backup cost” for wind is based on a simple failure to understand that adding wind energy always reduces the need for capacity on the power system, and never increases it. While wind energy can slightly increase the use of flexible reserves, that flexible capacity is already present on the power system to deal with far larger fluctuations in demand and failures at conventional power plants. Mr. Holly also apparently fails to understand that flexible resources are not dedicated to wind energy, but rather provide services to the whole power system. The grid operator doesn’t care what one wind plant is doing, or even what all wind plants are doing, but rather it only cares about the aggregate supply and demand of electricity. Changes in wind output are often counteracted by opposite changes in demand or in output deviations at conventional power plants, so trying to balance out changes in wind output is often counterproductive. As an analogy, it would be highly inefficient and counterproductive to have a dedicated resource accommodating fluctuations in the electricity demand at your house, as nearly all of those changes are canceled out anyway by other changes on the aggregate grid.

Regarding the cost of transmission, a recent study by the independent grid operator PJM found that the grid upgrades needed to accommodate 20% wind energy would have a very reasonable cost, accounting for only 6-8% of the value provided by wind energy. Regardless, other studies by independent grid operators have confirmed that these grid upgrades would more than pay for themselves by providing other benefits, such as improved electric reliability, reduced electricity prices, more competitive electricity markets, and higher efficiency of electricity transmission relative to today’s congested electric grid. Thus, these grid upgrades should be scored as a benefit of wind, not a cost.

Finally, Mr. Holly repeats the tired fossil fuel-industry myth that wind energy’s pollution and fuel use savings are significantly reduced by negative impacts on the efficiency of fossil-fired power plants. He picked a bad time to do so, as in the last month, two studies, one by a federal energy research laboratory and the other by the independent grid operator PJM, have used real-world hourly power plant emissions data to confirm that wind energy produces the expected emissions reductions. Specifically, the government study found that increased emissions due to cycling of fossil fuel plants offset only 0.2% of wind energy’s carbon emissions benefit, so that wind energy produces 99.8% of the expected emissions savings, for a total savings of 1190 pounds of CO2/MWh of wind.

Like similar attempts by the fossil fuel industry to attack wind energy (see responses here and here), Mr. Holly’s effort fails on all points. There is a reason 74 utilities bought wind energy last year and why wind energy has accounted for more than 35% of newly installed generating capacity over the last 5 years. Every day, more and more utilities are realizing that a stable, low-cost, fixed-price energy source with no emissions that can be reliably integrated onto the power system is a good deal for their customers.

References:

1. Based on a calculated wind integration cost of $0.50 per MWh of wind energy, which equals $.046 per MWh of total load served in ERCOT at 9.2% wind energy use (http://www.uwig.org/slcforework/Ahlstrom-Session1.pdf), based on reserve data presented by David Maggio, ERCOT (http://variablegen.org/wp-content/uploads/2012/12/Maggio-Reserve_Calculation_Methodology_Discussion.pdf), multiplied by the 1.262 MWh used per month by the average Texas household.

2. $2/MWh of total load served (http://www.eipconline.com/uploads/Phase_1_Report_Final_12-23-2011.pdf, page 61), multiplied by the 1.262 MWh used per month by the average Texas household.

Photo credit: First Wind - Milford Project, Utah

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