Economic Benefits

Fact Check: Wind energy key to Europe’s successful carbon reductions

Wind energy helps Europe cut carbon.
Fact Check: Wind energy key to Europe’s successful carbon reductions

Given its successful use of wind energy to rapidly reduce carbon pollution, Europe is a fitting host for world leaders who have gathered this week to chart a path to a low-carbon future. Europe’s largest wind energy users have all seen drastic declines in carbon emissions over the last decade, in lock-step and proportion to their growth in wind energy use.

Despite this success, The Economist magazine recently wove an illogical narrative that downplays wind’s role in successfully reducing Germany’s carbon pollution.

The facts about wind’s carbon reductions

As shown in the table below, there is a very strong relationship between growth in wind energy use and a reduction in the carbon intensity of a country’s electric sector. Europe’s wind energy leaders have reduced their electric sector emissions intensity far faster than other European countries, with top wind users achieving 30 percent or more reductions in the carbon intensity of their electric sectors.

Country 2002 wind % 2012 wind % 2002-2012 decrease in electric sector carbon emissions/MWh
Denmark 12.41% 33.42% 41.35%
Portugal 0.79% 22.01% 30.62%
Spain 3.81% 16.63% 30.14%
Ireland 1.54% 14.53% 28.08%
Germany 2.70% 8.05% 12.78%
OECD Europe 1.09% 5.73% 12.49%

 

The Economist makes the unusual decision to focus only on Germany, which among the wind leaders in the table falls on the low end for both wind expansion and carbon intensity reductions, only slightly outperforming the average for European OECD countries. Given the rate of wind growth in Germany, the reduction in emission intensity is to be expected.

However, The Economist’s narrative is even more misleading, leaving out two key factors in Germany’s story.

First, Germany’s carbon emissions would have fallen much further had it not drastically reduced its use of nuclear generation over this same time period for unrelated reasons. The Economist briefly mentions Germany’s well-publicized decision to phase out nuclear generation, but never examines the obvious explanation that shutting down a large amount of zero-carbon generation might be a key reason why Germany’s emission reductions were not more impressive.

Instead, the Economist weaves a convoluted and illogical explanation that blames wind energy for Germany’s average emission reductions. It alleges that growth in renewable energy has somehow caused a shift from gas generation to lignite coal generation in Germany.

This argument makes no sense from a technical perspective.

If anything, the modest increase in system variability caused by adding wind and solar would benefit flexible gas generation, relative to inflexible coal generation. All real-world experience and renewable integration studies to date confirm that gas power plants can more quickly and readily change their output than inflexible coal power plants, and therefore benefit from high levels of renewable use. This fact is supported by basic physical principles and is almost universally accepted in the power industry.

However, the Economist relies on a single unsupported quote from a single coal plant operator, apparently intent on promoting his own power plant, to make the allegation that coal plants are better suited for flexible operation.

A far more likely explanation, which the Economist never entertains, is that unrelated factors have caused the price of German natural gas to increase, making coal more attractive than gas generation. In fact, German natural gas prices have increased drastically in recent years due to geopolitical instability in Russia and the Ukraine, the source for much of Germany’s natural gas.

The chart included with the Economist article makes clear to any unbiased observer what has actually happened in Germany: expansion of zero-emission renewable energy has drastically reduced carbon pollution. This is despite carbon emission headwinds caused by the shutdown of much of Germany’s nuclear fleet and a shift from gas to coal generation, resulting from natural gas price spikes.

Had those two unrelated factors not occurred, Germany’s emissions reductions from its expanded use of renewable energy would have been even more impressive. Put differently, had Germany not rapidly increased its use of renewable energy, carbon emissions would have skyrocketed as it phased out nuclear generation while simultaneously shifting from gas to coal generation due to gas price jumps.

Economist

German electricity generation (The Economist)

Wind energy has lower integration costs than conventional power plants

The Economist further maligns wind energy in its effort to weave this false narrative by embracing debunked fossil fuel industry myths about “hidden costs.” In reality, the integration costs for wind energy are lower than the integration costs for large conventional power plants, turning The Economist’s hidden costs into a “hidden benefit” of wind.

As we’ve previously explained at length, wind energy is actually a very small contributor to total power system variability. Most changes in wind output are canceled out by opposite changes at other wind plants or the far larger random fluctuations in electricity supply and demand. Changes in wind output are gradual and predictable, in contrast to the abrupt instantaneous failures of large conventional power plants. Because these fast-acting reserves are far more expensive, data from the Texas grid operator confirm that the cost of accommodating the abrupt failures of large conventional power plants is many times larger than the cost of integrating wind energy.

Recent analysis by the National Renewable Energy Laboratory identified additional ways in which large, inflexible fossil and nuclear generators impose bigger costs on other power plants than wind generation. Because many large nuclear and fossil generators are unable to quickly change their output, other power plants must meet a greater share of the power system’s need for flexibility to accommodate the constant fluctuations in electricity demand. This new analysis found that impacts from large conventional generators are far larger than those of added wind generation.

Beyond wind’s lower integration costs actually being a hidden benefit of wind power, another problem with The Economist’s argument is that wind generators are only paid for the energy and capacity services they provide to the power system. Therefore there cannot be a hidden cost. Wind generators play by the same energy and capacity market rules as other generators. While it is true that in some cases wind generation provides slightly (typically only about 10 percent) less value to the power system than a more dispatchable conventional power plant, this is reflected in the capacity and energy payments awarded to wind generators.

It is also important to clarify that wind generation always makes positive contributions to meeting the power system’s need for capacity and energy. The system’s need for energy and capacity will always be lower with wind generation than if the wind generation were not there, and therefore the prices for those services will be lower. Returning to The Economist’s myth that wind has somehow contributed to an increase in lignite coal generation, in reality the growth of renewable generation has led Germany to cancel plans for new lignite generating capacity.

It should also be noted that most U.S. power systems currently have a surplus of capacity. For those that do not, additional capacity can be obtained at relatively low cost through demand response and energy efficiency, the more than 45 gigawatts of new gas generation that is already being built, or even retaining some existing generating capacity. Retaining existing generating capacity is often an attractive option. Doing so only incurs a plant’s ongoing fixed costs, which are typically quite small, and does not significantly affect emissions because emissions are a product of energy production, not maintaining capacity.

Energy costs are a far larger component of consumers’ electric bills than capacity costs, and wind energy greatly reduces energy costs in addition to making some contribution to meeting capacity needs. The value recovered in PJM’s separate capacity market is only about 1/6 of the total value recovered in the energy market. This is confirmed by comparing the very large total production cost of the power system, which is largely composed of fuel costs, against the far smaller fixed cost and annualized capital cost of power plant capacity, levelized over the very long lifetime of those assets.

“Had Germany not rapidly increased its use of renewables, carbon emissions would have skyrocketed as it phased out nuclear generation, while simultaneously shifting from gas to coal due to gas price jumps.”

The Economist needs an economics lesson

One of The Economist’s strangest arguments is its criticism of Texas’s decision to lift price caps in its energy market. Academic economists widely support removing price caps as a way to send a stronger price signal by better reflecting supply and demand, so it’s odd for The Economist to deride this as an example of wind interfering in electricity markets.

Regardless, the concern that led Texas to raise the price caps had far more to do with low gas prices causing low energy market prices and an inability of gas generators to recover their fuel costs when gas prices spike than any impact wind is having on the market. Similarly, creating markets to pay for services the power system needs, such as capacity markets, should also earn praise from a free market advocate like The Economist.

However, The Economist is correct in prescribing the market-based solution of a carbon price to fix the problem of coal generation displacing more expensive gas generation in Germany. Properly valuing the externality cost of carbon pollution in the market would not only ensure that gas generation displaces coal generation, but also that wind generation displaces coal generation first, instead of gas. Wind always displaces the most expensive resource that is currently online, so making coal generation more expensive than gas generation will ensure that wind energy displaces coal first.

A carbon price is also the solution to a strawman argument raised by The Economist. Adding low-fuel-cost wind and solar energy does tend to reduce electricity market prices, just like adding low-fuel-cost nuclear, coal, or hydroelectric generation does. Adding new low-cost supply of any type pushes out the supply curve, in some cases causing the last increment of electricity demand to be met by a lower-cost resource than if that supply were not added.

In most power markets, the electricity supply curve is relatively flat, with most coal generators providing low-cost generation at about the same price point and then most combined cycle gas generators clustered around the same higher cost of generation. As a result, adding supply tends to have little impact on the market price until enough has been added that the market price drops down from clearing at the cost of combined cycle gas generation to the cost of coal generation.

Again, it is strange that the free market Economist expresses concern about this normal functioning of electricity markets, particularly because it results in lower costs for consumers.

However, to the extent this drop in price is viewed as a concern, the best way to mitigate it is by pricing carbon in the market, so that the cost of coal generation is brought up to roughly the same level as combined cycle natural gas generation. This also addresses the misconception that nighttime wind generation has less societal value than daytime generation – if carbon were priced in the electricity market then nighttime wind generation displacing coal generation would have the same or higher value than daytime generation displacing gas generation.

The Economist then adopts a strawman argument about so much renewable generation being added to the power system that renewable energy is essentially meeting all electricity demand in enough hours to have a significant impact on average electricity market prices. Because renewable energy has no fuel cost, obtaining essentially 100 percent of electricity from renewable energy could cause the electricity market clearing price to drop to near zero. However, a very high penetration of renewable energy would be required for that to happen in enough hours to have a significant impact on average electricity prices on a large interconnected power system. We are well short of that level in all countries, particularly in the U.S., as shown in the chart below. Moreover, The Economist correctly notes that transmission upgrades, demand response, and other technologies are the solution if we get to that level.

EU Generation

Proportion of wind in electricity generation

The same price drop would occur if one obtained a similarly large share of electricity from nuclear, hydropower, or other low-fuel-cost generation. Trying to run a power system 100 percent on any one energy source is likely to cause economic and reliability problems, making this argument meaningless. All energy sources work best as part of a diverse portfolio.

Regardless, any concerns about renewable energy affecting electric reliability in Europe have no basis in fact. Wind energy leaders Denmark, Ireland, Spain, and the Netherlands all have some of the most reliable power systems in the world, and they have seen their reliability improve significantly as they have increased their use of wind energy. Germany’s power system is the most reliable in Europe, and it has grown even more reliable as Germany has greatly increased its use of renewable energy in recent years. Germany’s reliability score is 16 times better than that of the US, and four times better than that of France.

American renewable resources are higher quality and more diverse than those in Europe, so reliably and cost-effectively integrating large amounts of renewable energy will be even easier in the U.S. America’s wind energy resources are about twice as productive as those in Germany on average, and are available in more locations and at lower altitudes, giving our wind energy a far lower cost. The U.S. power system is larger and more flexible than that in most of Europe, with abundant hydroelectric resources, flexible gas generation, and more weather-driven electricity demand variability that, as explained above, cancels out much of the variability of renewable energy. In contrast, Ireland is essentially an electrical island with minimal transmission ties and an inflexible generation fleet, and Spain and Portugal have similarly succeeded with minimal transmission ties to neighbors.

The carbon benefits of wind energy are also larger in the U.S., where wind energy saved more than 125 million metric tons of carbon pollution in 2014, the equivalent annual emissions of 26 million cars. U.S. wind generation is highly productive and has been heavily concentrated in regions with the most carbon-intensive power systems, further increasing wind’s environmental benefits. As a result, DOE and the Wall Street investment firm Lazard recently released data showing wind energy is by far the lowest-cost generation solution for reducing carbon pollution in the U.S.

In short, wind’s success in Europe can be the preamble for an even greater success story here in the U.S.

Economic Benefits

Michael Goggin is Vice President at Grid Strategies LLC, a DC-area consulting firm working on grid and markets issues for clean energy clients including AWEA. He was previously head of Research at AWEA.

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