Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

Wind Lowers Prices: New Scientist

by afew Fri Jul 30th, 2010 at 05:47:23 AM EST

In the Wind series

Jérôme and I wrote an opinion piece on the economics of wind power for New Scientist, and it has now been published.

All power to the wind - it cuts your electricity bills - opinion - 26 July 2010 - New Scientist

ATTEMPTS to discredit wind power often claim that wind turbines need to be subsidised. A piece in British newspaper The Daily Telegraph last month asserted that each wind turbine in the UK receives, on average, £138,000 in subsidies a year, and that as a result wind-power investors are coining it hand over fist at the taxpayer's expense.

So are wind farms subsidised? In the sense of direct government support, very rarely. What they do enjoy in most countries, though, is a guaranteed right of access to the grid, and minimum prices for the electricity they produce.

The article explains marginal pricing and the merit order effect that lowers average electricity prices, going on to suggest that established producers are hostile to further penetration of wind in electricity generation because it deprives them of windfall gains on high spot prices.

Imagine you run a utility company with coal-fired or nuclear plants. From your perspective, wind power is causing you to lose out on the windfall cash previously provided by high spot prices at times of peak demand. Will you be inclined to look favourably on plans to increase the share of wind power in total electricity generation?


And ends with a perspective on the organisation of the market:

It may be that the electricity market will evolve into one that offers long-term fixed prices to producers, as power distributors take into account the long-term stability of the cost of wind power. In that case, wind will need no special favours, since it will be cost-competitive with nuclear and coal. Until that happens, the framework in which wind operates - permitting investment while lowering prices for consumers - is not an abusive subsidy but simply intelligent market regulation.

Read the whole thing here.

Update [2010-8-3 4:35:39 by afew]: Article now seems to have gone behind a subscription wall.

Display:
Excellent article. today new Scientist, tomorrow the FT !! ( not)

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Thu Jul 29th, 2010 at 08:38:17 AM EST
But they have already published in the FT!

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Thu Jul 29th, 2010 at 09:26:42 AM EST
[ Parent ]
I thought Jerome had an article in FT and together they were in Le Monde.

Anyway, that was ages ago.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Thu Jul 29th, 2010 at 10:43:49 AM EST
[ Parent ]
Is it possible to describe the publication process of this excellent example?

How was the first contact made: personal contact, previous dealings, request from publisher, submitted on spec etc?

How much editorial input from the publisher?

Length of time from submission to publication?

You can't be me, I'm taken

by Sven Triloqvist on Thu Jul 29th, 2010 at 09:22:09 AM EST
NS has a couple of op-ed pages managed by an op-ed editor.

I pitched something to them a few years ago. They were interested, but both of us got distracted and I never had the time to follow it up.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jul 29th, 2010 at 10:13:03 AM EST
[ Parent ]
NS made contact after seeing a JaP post saying wind annoyed incumbents by bringing prices down (X-posted on DKos where it was seen).

From first contact to publication, about six weeks.

Editorial input (excellent) was simplification of technical points and slight reduction in length (our first draft was a little over the approximate word count requested, but better that than be short).

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jul 29th, 2010 at 10:35:26 AM EST
[ Parent ]
The post by Jerome that was noticed is Wind's latest problem: it ... makes power too cheap.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jul 29th, 2010 at 10:54:02 AM EST
[ Parent ]
OK. Good. Seems a long time to get it published, but I guess there is also the difficulty of you and J writing the article on busy schedules. After the final edit it was probably a fairly rapid process?

You can't be me, I'm taken
by Sven Triloqvist on Thu Jul 29th, 2010 at 11:21:44 AM EST
[ Parent ]
Some delay was caused by the fact that J was travelling all the time if not perched on a windmill in the North Sea. I think there was also a wait for an available slot.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jul 29th, 2010 at 11:32:41 AM EST
[ Parent ]
Concise and to the point. Kudos.

I would like to bring up a point sure to spark debate at New Scientist.  You say here at ET:

"going on to suggest that established producers are hostile to further penetration of wind in electricity generation because it deprives them of windfall gains on high spot prices."


So the MOE is good for consumers - but what about the big picture? We believe that, paradoxically, it spurs opposition to renewables among energy companies, and discourages investment in them.

Imagine you run a utility company with coal-fired or nuclear plants. From your perspective, wind power is causing you to lose out on the windfall cash previously provided by high spot prices at times of peak demand. Will you be inclined to look favourably on plans to increase the share of wind power in total electricity generation?

Many of the prime investors and project developers in offshore wind are indeed the very utility companies, with coal and other fossil fuels as well as substantial nuclear facilities, who take on the higher costs and risks.  RWE, E.On, Vattenfall, SSE (Scottish & Southern), Stadtoil, Dong, and onward... it seems you're inviting some backlash.

Figuring out the relative benefits and negatives regarding wind for a coal-heavy utility like RWE is complex.  I don't disagree that these utilities may at the top be somewhat hostile (or worse) to wind in general.  At the same time, they are often our current employers.

I'm meeting with one in less than an hour.

"Life shrinks or expands in proportion to one's courage." - Anaďs Nin

by Crazy Horse on Thu Jul 29th, 2010 at 09:42:56 AM EST
This is a case of editorial simplification. Yes, major utilities invest in wind, partly as a result of public policy pressure, and perhaps because once the merit order effect of renewables gets rolling, better to be in on it. But happy about losing traditional sources of cash, surely not. And in some cases, possibly, willing to support attempts to talk wind (and other renewables) down?
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jul 29th, 2010 at 10:45:56 AM EST
[ Parent ]
Precisely, and for that reason, i'm not going to comment further.

Except, if i was an international utility, i'd be pretty cool enjoying the fruits of a cake and eat it too scenario.

For us, continually, just one step after the other, we'll get it done.

"Life shrinks or expands in proportion to one's courage." - Anaďs Nin

by Crazy Horse on Thu Jul 29th, 2010 at 07:22:13 PM EST
[ Parent ]
The big utilities had to be dragged into the sector, and they initially invested for PR/regulatory reasons rather than for industrial ones.

Now that the sector is reaching the size it has (ie bigger than anything else in terms of new build), that large numbers of utility engineers and managers are invested in the sector, and that utilities no longer have to deal with the grid stuff (having sold or split the grid from pruduction assets), they are much more actively supporting the sector.

The reality is that 50-80% of their investment budget in the next 10-15 years will go to wind, offshore in particular, a sector which has the kind of scale they like.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Jul 30th, 2010 at 05:48:43 AM EST
[ Parent ]
The comments on the article were all rather disappointing.  Is someone going to go and correct all the nonsense spouted there? ("I'm no expert, but the article is all wrong")
by njh on Thu Jul 29th, 2010 at 07:31:38 PM EST
You have to be a NS subscriber to post comments...
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Aug 1st, 2010 at 05:31:20 AM EST
[ Parent ]
Surely writing an article suffices to be able to respond?
by njh on Sun Aug 1st, 2010 at 07:49:19 PM EST
[ Parent ]
We're hoping to get a couple of responses through via the editor.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 2nd, 2010 at 10:24:11 AM EST
[ Parent ]
Now posted.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 2nd, 2010 at 11:06:33 AM EST
[ Parent ]
I like how they extracted the "Money Quote":

"You end up paying less for your electricity when wind power is part of the mix"

That's a good one-liner...

by Bernard on Fri Jul 30th, 2010 at 11:48:20 AM EST
by Jerome a Paris (etg@eurotrib.com) on Fri Jul 30th, 2010 at 06:52:40 PM EST
Good comments.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Jul 31st, 2010 at 01:21:37 AM EST
[ Parent ]
but comments at the new scientist are still depressingly of the "wind is expensive and subsidized" type...

A free fox in a free henhouse!
by Xavier in Paris on Mon Aug 2nd, 2010 at 03:56:04 AM EST
[ Parent ]
... I tweeted a bit.ly to the article and got a Heritage / Cato Institute fan repeating the argument that if its necessary for government to "distort" the market, then wind must be uneconomic. Setting aside externalities, and setting aside the fact that marginalist bid markets in the power supply industry are constructed on the foundation of government investment in infrastructure and government regulation of contractual relationships ...

... the response to how it is uneconomic if having wind in the mix reduces the average cost of power only gets repetition of the claim that its uneconomic.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 2nd, 2010 at 10:00:32 AM EST
[ Parent ]
BruceMcF:
... the response to how it is uneconomic if having wind in the mix reduces the average cost of power only gets repetition of the claim that its uneconomic.

It is 'uneconomic' if value is denominated using an intrinsically worthless value standard such as $, € or £.

It is 'economic' if value is denominated using an energy standard or other real world value standard.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 2nd, 2010 at 10:28:20 AM EST
[ Parent ]
... if it reverses the inequality.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Aug 2nd, 2010 at 10:32:05 AM EST
[ Parent ]
... two different meanings of value ... "importance", which is multidimensional for all truly valuable things and irreducible to a single index, and "amount of money required to buy", where by definition the "market value" is in terms of whatever functions as money for the market in question.

Adopting energy units as a commodity-money would lead under current circumstances to a constantly deflating monetary unit, which would be destabilizing precisely in those periods of real resource constraints when financial side instability would be particularly unwelcome. They would be far more useful as an asset than as a form of money.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 2nd, 2010 at 10:36:57 AM EST
[ Parent ]
You expect rationality from a card carrying libertarian?
by njh on Mon Aug 2nd, 2010 at 02:10:33 PM EST
[ Parent ]
Unbounded, actually.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Aug 2nd, 2010 at 02:34:50 PM EST
[ Parent ]
... monotonic as well as unbounded rationality. Plus perfectly informed and economically powerless all around.

I was more focusing on the question of why anyone would set forward an intrinsically valuable monetary unit as a feature rather than as a bug after the history of repeated depressions and hyperinflations under the Gold Standard replaced, in the core industrial nations, by neither depression nor hyperinflation under sovereign fiat currency.

Libertarianism has nothing much to do with that: as a matter of empirical record, monetary systems based on media with independent value are miserable failures at delivering stability and reasonably sustained participation across the income ladder.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 2nd, 2010 at 02:45:52 PM EST
[ Parent ]
speaking of features and bugs:

Are you therefore a gold bug?  or an energy bug?  or something else?

by njh on Mon Aug 2nd, 2010 at 09:39:46 PM EST
[ Parent ]
I'll take Modern Monetary Theory bug for $100, thanks Alec.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Aug 3rd, 2010 at 02:59:34 PM EST
[ Parent ]
BruceMcF:
Adopting energy units as a commodity-money would lead under current circumstances to a constantly deflating monetary unit, which would be destabilizing precisely in those periods of real resource constraints when financial side instability would be particularly unwelcome. They would be far more useful as an asset than as a form of money.

There is a difference between an Energy Standard - which is a Unit of measure of Value - and a Unit of currency, which is what I prefer to think of as 'money's worth'.

A Value Standard cannot deflate, any more than a kilogramme or a metre - it is, by definition, an absolute.

A Unit of currency, on the other hand can deflate or inflate by reference to a Value Standard.

Why do you say energy currency units must necessarily deflate?

There is a virtually infinite amount of renewable energy - not to mention energy savings - available to be monetised/unitised in the course of financing the transition from carbon.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 2nd, 2010 at 08:32:59 PM EST
[ Parent ]
There is a difference between an Energy Standard - which is a Unit of measure of Value - and a Unit of currency, which is what I prefer to think of as 'money's worth'.

A Value Standard cannot deflate, any more than a kilogramme or a metre - it is, by definition, an absolute.

A "Unit Measure of Value" implies that value is commensurate with a scalar, which is one of the empirical flaws of the utility maximizing theory of behavior ... since "Value" is a reification of the process of valuing.

You are of course free to make up existing words to mean anything you wish them to mean, but you cannot impute your definitions when someone is using a more common sense of the word. I mean standard of value in the more common sense of standard of value.

What matters for Energy units as a standard of value is the terms of trade of the energy harvest with all other produced goods and services, and part of the transition to a sustainable economy will be an increase in those terms of trade.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 2nd, 2010 at 08:47:46 PM EST
[ Parent ]


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries