The cost of wind, the price of wind, the value of wind

by Jerome a Paris Mon May 4th, 2009 at 04:15:09 AM EST

I'd like to try to clear some of the confusion that surrounds the economics of wind power, as it is often fed and used by the opponents of wind to dismiss it. As I noted recently, even the basic economics of energy markets are often wilfully misunderstood by commentators, so it's worth going in more detail through concepts like levelised cost and marginal cost, and identify how different electricity producers have different impacts on electricity (market) prices (which may or may not be reflected in retail prices) and have different externalities. Value for society of a generation source may also include other items that are harder to acount in purely monetary terms (and/or whose very value may be disputed), such as the long term risk of depletion of the fuel, or energy security issues, such as dependency on unstable and/or unfriendly foreign countries or vulnerable infrastructure.

Depending on which concept you favor, your preferred energy policies will be rather different. Follow me below the fold for a tour.

The usual disclosure: my job is to finance, among other energy projects, wind farms. My earlier articles on wind power can all be found here

Costs

The cost of wind is, simply enough, what you actually need to spend to generate the electricity. The graph below shows how these costs have changed over the past decade: a long, slow decline as technology improved, followed, over the past 3 years, by an increase as the cost of commodities (in the case of wind, mainly steel) increased, and as strong demand for turbines allowed the manufacturers (or their subcontractors) to push up their prices:

Source: Economics of wind (pdf) by the European Wind Energy Association

The most recent Energy Outlook by the International Energy Agency suggests that wind power currently costs €60/$80 per MWh, which makes it, today, pretty close to what the traditional generation sources (nuclear, coal, gas) cost:

Source: World Energy Outlook 2008 (available on order only)

In the case of wind, it is important to note that most of the costs are upfront, i.e. you need to spend money to manufacture and then install the wind turbines (and build the transmission line to connect to the grid, if necessary), but once this is done, there are very few other actual costs: some maintenance and some spare parts now and then.

This means that the levelised cost of wind (ie, the average cost over the long run, when initial investment costs are spread out over the useful life of the wind turbines) is going to be highly dependent on the discount rate, i.e. the hypotheses used to spread the initial cost of investment over each MWh of production over the useful life of the wind turbine, both in terms of duration, and the rate used. The graph below shows the sensitivity of the cost of wind depending on the discount rate used (over 20 years):

Source: Economics of wind (pdf) by the European Wind Energy Association

The discount rate is the cost of capital applied to the project, it will depend on whether you can find debt (whose price can depend on your credit rating) or need to provide equity (which is usually more expensive); altogether this means that most of the revenue generated by a wind farm at any point during its lifespan will go to repay the initial investment rather than to actual short term production costs; moving the discount rate from 5% to 10% increases levelised costs by approximately 40% (whereas for a gas project, it would typically be less than 20%).

Source: the Economist, 2005
Note: this reflects price for gas at 3-4$/MBTU

As a consequence, the marginal cost of wind is essentially zero, i.e., at a given point in time, it costs you nothing to produce an extra MWh (all you need is more wind). In contrast, the marginal cost of a gas-fired plant is going to be significant, as each new kWh requires some fuel input: that marginal cost is very closely related to the price of the supply of the volume of gas needed to produce that additional MWh.

The cost structure of wind and gas-fired power plants are completely different, as the graph to the right (from the Economist) shows: one includes mostly finance costs, the other mostly fuel costs (with nuclear closer to the economics of wind, and coal closer to the economics of gas).

It is worth emphasizing that "letting the markets decide" is NOT a technology-neutral choice when it comes to investment in power generation: public funding (such as can be available to State-owned or municipal utilities) is cheaper than commercial fund of investment: given that different technologies have different sensitivities to the discount rate, preferring "market" solutions will inevitably favor fuel-burning technologies, whereas public investment would tilt more towards capital-intensive technologies like wind and nuclear.

This also means that, once the investment is made, the cost of wind is essentially fixed, while that of gas-fired electricity is going to be very variable, depending on the cost of the fuel. The good news for wind is that its cost is extremely predictable; the bad news is that it's not flexible at all, and cannot adjust to electricity price variations.

Or, more precisely, wind producers take the risk that prices may be lower than their fixed cost at any given time. Given that, as a zero-marginal cost producer, the marginal cash flow is always better when producing than not, wind is fundamentally a "price-taker," i.e., the decision to produce will not depend on the price; however, the ability to repay the initial debt will depend on the level of the price, and if prices are too low for too long, the wind farm may go bankrupt. Meanwhile, gas producers take a risk, at any time, on the relative position, of the prices of gas and of electricity (what the industry calls the "spark spread"). This is a short term risk: gas-fired plants have the technical ability to choose to not produce (subject to relatively minor technical constraints) at any given time, they can thus avoid any cash flow losses, and the very fact that they shut down will influence both the gas price (by lowering demand) and the electricity price (by reducing supply). In fact, as we'll see in a minute, electricity prices are directly driven, most of the time, by gas prices, and thus gas-fired plants are "price-makers" and thus their costs are what drive electricity prices.

This suggests, once again, that selecting market mechanisms to set electricity prices (rather than regulating them) is, again, not technology neutral: here as well, deregulated markets are structurally more favorable to fossil fuel-based generation sources than publicly regulated price environments.

At this point, the conclusions on the cost of wind power (ignoring externalities, including network issues, which I discuss below) are that they don't seem to be that different from those of traditional power sources (nukes, gas, coal), but that they have a very different relationship to prices.

So let's talk about prices.

Prices

There are two aspects here: the price received by wind producers, and the price paid by buyers, which may be different.

The price of wind energy is what wind energy producers get for their production. It may, or may not, be related to the cost of the generation, but you'd expect the price to be higher than the cost, otherwise investment would not happen. But the question is, of course, whether the price needs to be higher all the time, or just on average, and if so, for what duration.

Given, as we've seen before, that wind has fixed prices, all a wind producer requires is a price which is slightly above what its long term costs are. That makes investment in wind profitable and actually rather safe (which means that a fairly low return on capital is required). The problem, as we've seen, is that wind is a price-taker and, unless producers are able to find long term power purchase agreements (PPAs) with electricity consumers at such prices, it is subject to the vagaries of market prices. And when your main burden is to repay your debt, and you don't have enough cash for too long (because prices are below your cost for that period), you go under right away, even though you can generate a lot of cash (remember that wind is a zero-marginal cost producer and can generate income whatever the market price is) - which means that a bankrupt wind farm will always be a good business to take over; it's just that it may not be a good business to invest in if prices are too volatile...

And thus it is not that surprising that the most effective system to support the development of wind power has been so called feed-in tariffs whereby the wind producers get a guaranteed, fixed price over a long duration (typically 15 to 20 years) at a level set high enough to cover costs. The fixed price is paid by the utility that's responsible for electricity distribution in the region where the wind farm is located, and it is allowed by the regulator to pass on the cost of that tariif (ie the difference between the fixed rate and the wholesale market price) to ratepayers. It's simple to design, it's effective and, as we'll see, it's actually also the cheapest way to promote wind. Other mechanisms include quotas which can be traded (that's what green certificates or renewable portfolio standards amount to) or direct subsidies, usually via tax mechanisms. Apart from tax benefits, which are borne by taxpayers, all other schemes impose a cost surcharge on electricity consumers (although, as we'll see below, in the case of feed-in tariffs, that surcharge may not exist in reality, as we'll see below).

But there's an even trickier aspect to wind and electricity prices: in market environments, marginal cost rules, i.e. the price for electricity is determined, most of the time, by the most expensive producers needed at that time to fulfill demand. Demand is, apart from some industrial use, not price sensitive in the very short term, and is almost fixed (people switching lights and A/C on, etc...), so supply has to adapt, and the price of the last producers that needs to be switched on will determine the price for everybody else.

Source: Economics of wind (pdf) by the European Wind Energy Association

If you look at the above graph, you see a typical 'dispatch curve', i.e. the line representing generation capacity, ranked by price. Hydro is usually the cheapest (on the left), followed by nuclear and/or coal, and then you have gas-fired plants and CHP (combined heat and power) plants, followed to the far right by peaker plants, usually gas- or oil-fired.

You take you demand curve (the quasi vertical lines you can see on the right graph), and the intersection of the two gives you the price. As is logical, night time demand is lower and requires a lower price than normal daytime prices, and even less than peak demand which requires expensive power generators to be switched on.

The righthand graph shows what happens when wind comes into the picture: as a very low marginal price generator, it is added to the dispatch curve on the left, and pushes out all other generators, to the extent is available at that time. By injecting "cheap" power into the system, it lowers prices. The impact on prices is pretty low at night, but can become significant during the day, and very high at peak times (subject, once again, to actual availability of wind at that time).

Source: Economics of wind (pdf) by the European Wind Energy Association

As the graph above suggests, the impact on price of significant wind injections is high throughout the day, and highest at times of high demand. When there's a lot of wind, you end up with prices that get flattened at the price of base load, i.e. the marginal cost of nukes or coal, and wind no longer has any influence on price.

But the consequence of this is that the more wind you have into the system, the lower the price for electricity. With gas, it's the opposite: the more gas you need, the higher the price will be (in the short term, because you need more expensive plants to be turned on; in the long run because you push the demand for gas up, and thus the price of gas, and thus of gas-burning plants, up).

In fact, if you get to a significant share of wind in a system that uses market prices, you get to a point where wind drives prices down to levels where wind power loses money all the time! (That may sound impossible, but it does happen because the difference between the low marginal cost and the higher long term cost is so big).

There are two lessons here:

wind power has a strongly positive effect for consumers, by driving prices down for them during the day.

it is difficult for wind power generators to make money under market mechanisms unless wind penetration remains very low; this means that if wind is seen as a desirable, ways need to be found to ensure that the revenues that wind generators actually get for electricity are not driven by the market prices that they make possible.

That's actually the point of feed-in tariffs, which provide stable, predictable revenue to wind producers, and ensure that their maximum production is injected into the system at all times, which influences market prices by making supply of more expensive producers unnecessary. And these tariffs make sense for consumers. The higher fixed price is added to the bill for the buyers of electricity, but as that bill is lower than it would have otherwise been, the actual cost is much lower than it appears. As I've noted in earlier diaries, studies in Germany, Denmark and Spain prove that the net cost of feed-in tariffs in these countries is actually negative, i.e. a apparent fixed cost imposed on consumers ends up reducing their bills!

Assessment of the impact of renewable electricity generation on the German electricity sector (pdf)
Mario Ragwitz, Frank Sensfuss, Fraunhofer Institute, presentation to EWEC 2008

The table above indicates that renewable energy (mostly wind, plus some solar) injections into the German electricity system caused, on average over the year, prices to be reduced by about 8 euros/MWh - about 15%. That translated into savings of 5 billion euros over the year for electricity buyers (utilities and other wholesale consumers), or 95 EUR/MWh of renewable energy injected. With a feed-in tariff of, on average, 103 EUR/MWh (which includes the high price for solar; wind tariffs are around 85EUR/MWh), the net cost of renewables is thus under 10 EUR/MWh, to be compared to a average wholesale price of 40-50 EUR/MWh. Thanks to the feed-in tariff, a wind MWH costs one fifth of a coal MWh!

In other words, by guaranteeing a high price to wind generators, you ensure that they are around to bring prices down. And that trick can only work with low marginal cost producers, thus not with any fuel-based generator, which would need to pay for its fuel in any case, and might end up requiring a higher price than the guaranteed level to break even, if fuel prices increased (as they would if such a scheme came up and encouraged investment in such plants) .

So we get an glimpse of the fact that there is value in wind power for consumers which is not reflected directly through electricity prices, and is only remotely related to the actual cost of wind.

Value / externalities

Which brings us to our last point, the "value" of wind power, which has to include the other impacts of wind onto the system that are not captured by monetary mechanisms. This is also what economists call externalities, i.e. the impact of economic behavior or decisions which are not reflected in the costs or prices of the economic entity taking the decision. Pollution is a typical externality, but so is the impact on the grid of bringing in a new producer.

Regulation is meant to put a price on these items, in order to reflect the "true cost" of a given economic action, i.e. in this case a decision to invest in a wind farm or a gas-fired plant or otherwise. Amongst the externalities we need to discuss here are the intermittency of wind, carbon emissions (which, in this case, is an existing, improperly priced, externality of existing technologies which wind can help to avoid), and security of supply.

Intermittency and balancing costs
A traditional argument against wind (its availability is variable, and cannot be counted upon to fulfill demand), which people may be surprised to find listed here as an externality - but that's what it is. In a market, you are not obliged to sell; the fact that the electricity grid requires demand to be provided at all times is a separate service, which is not the same thing as supplying electricity - it's continuity of supply. But while wind is criticized for its intermittency, I never hear coal or nuclear blasted because the reserve requirements of the system need to be sized to be at least as big as the largest plant around, should that plant (which is inevitably a multi-GW coal or nuclear plant) happen to drop off. The market for MWh and the market for "spare MWh on short notice" are quite different animals, and the Germans actually treat them separately:

From wikipedia

The Germans distinguish between permanent base load (i.e. the minimum consumption of any time, which effectively requires permanent generation, "Grundlast" in the graph above), semi-base load (or the predictable portion of the daily demand curve, "Mittellast" in the graph above), and peak/unpredictable demand (i.e. the short term variations of supply availability and demand - "Spitzenlast" in the graph above). Wind is now predictable with increasing accuracy with a few hours advance, and can, for the most part, be part of semi-base load; i.e., low winds can be treated just like a traditional plant being on maintenance: reduced, but expected, availability of a given asset.

(for contrasting views on this topic, you can read these two articles: Wind is reliable and Critique of wind integration into the grid on Claverton). The reality here is that the service "reliability of supply" is well-understood, and the technical requirements (having stand-by capacity for the potentially required volumes) are well-known, there is plenty of experience on how to provide them ("spinning reserves", i.e. gas-fired plants available to be fired up, or interruptible supply contracts with some industrial users who accept to be switched off at short notice) and experience and the relevant regulations have made it possible to put a price on that service.

Source: Economics of wind (pdf) by the European Wind Energy Association

In the case of wind, the cost of the service (which a wind producer needs to pay to the grid operator in order to be able to provide its service, which is the same of kWh) is estimated at 2-4 EUR/MWh, i.e. 5% or less of the cost of wind. And, given that the relevant regulations exist, that externality can be easily internalised - and in that case, added to the cost of producing windpower - or deducted from the price wind generators can get for selling their "naked" MWh.

Carbon emissions
The second externality to mention is carbon emissions. In that case, it is not an externality caused by wind generation, it is an externality which is created by existing power generators, which is not properly accounted for yet today, but which wind generation avoids. In other words, there is a benefit for society to replace fossil fuel-burning generation by wind, but it is not priced in yet (or, in other words, the indirect cost of coal-burning is paid by the inhabitants of low-lying islands rather than by the consumers of that electricity).

Attempts to price carbon emissions are moving forward, with the European ETS (emissions trading system) and the expected "cap-and-trade" mechanism in the USA; these require carbon-spewing generators to pay for that privilege and materialize a new cost for them, which will be added to their cost of generating electricity (but not to that of wind, as it emits no carbon dioxide in the process).

Source: Economics of wind (pdf) by the European Wind Energy Association

The grey area in the bars above is the added cost of producing electricity from coal or gas, for two different prices of carbon (note that the bottom graph also changes the cost of fuel, which increases the other component of cost for coal and gas). It has a significant impact on the net cost of production for these sources, and on the respective competitively of competing technologies. Note that the graph above includes the grid-related costs for wind discussed above, in dark blue.

It is no less legitimate to include the cost of carbon as it is to include the cost of stand-by capacity in the calculation of the cost of electricity. If we consider the power grid as a fully integrated system, then there is very little reason to include some externalities and not others - other, that is, than force of habit and lobbying by the incumbents who designed the rules around their exiting generation mix.

security of supply
A power plant is an investment that can last 25 to 50 years (or even more, in the case of dams). Once built, it will create patterns of behavior that will similarly last for a very long time. A gas-fired plant will require supply of gas for 25 years or more (and the corresponding infrastructure, and attached services, employees ... and lobbyists). Given worries about resource depletion (usually downplayed) and about the unreliability of some suppliers (hysterically exaggerated, cf the "New Cold War" hype about Putin's Russia), it is not unreasonable to suggest that security of supply has a cost.

This may be reflected in long term supply arrangements with firm commitments by gas-producing countries to deliver agreed volumes of gas over many years - but, given all the Russia-angst we hear, this does not seem to be enough (most supplies from Russia are under long term contracts). Wind, which requires no fuel, and thus no imports, neatly avoids that problem, but how can that be valued in economic terms? That question has no satisfactory reply today, but it is clear that the value is more than nil.

Another aspect of this is that "security of supply" is usually understood to mean "at reasonable prices." Fuel-fired power plants will need to buy gas or coal in 10, 15 or 20 years time and it is impossible today to hedge the corresponding price risk. Given prevalent pricing mechanisms, individual plants may not care so much (they will pass on fuel price increases to consumers), but consumers may not be so happy with the result. Again, here, wind, with its fixed price over many years, provides a very valuable alternative: a guarantee that its costs will not increase over time. Markets should theoretically be able to value this, but futures markets are not very liquid for durations beyond 5 years, and thus, in practice, they don't do it. This is where governments can step in, to provide a value today to the long term option embedded in wind (i.e. a "call" at a low price). This is what feed-in tariffs do, fundamentally, by setting a fixed price for wind production which is high enough for producers to be happy with their investment today, and low enough to provide a hedge against cost increases elsewhere in the system (and indeed, last year, when oil and gas prices were very high, feed-in tariffs in several countries ended up being below the prevailing wholesale price: the subsidy went the other way round...).

Note that the regulatory framework will decide who gets access to that value: if wind is sold at a fixed price, it is the buyer of that power that will benefit from the then-cheap supply (and that may be a private buyer under a PPA, or the grid operator; depending on regulatory mechanics, that benefit may be kept by that entity, or have to be reflected into retail tariffs for end consumers). If wind producers get support in the form of tax credits or "green certificates", it is wind producers that will capture the windfall of high power prices. So the question is not just how to make that value appear, but also how to share it. Both are political questions to which there are no obvious answers.

:: ::

So wind power has value as a low-emissions, home-grown, fixed cost supplier. It also tends to create significant numbers of largely non-offshoreable jobs, which may be an argument in today's context. It also has, in a market pricing mechanism, the effect of lowering prices for consumers thanks to its zero-marginal cost. Its drawbacks, i.e. mainly intermittency, can be priced and taken into account by the system. (Birds/bat are not a serious issue, despite the hype; esthetics are a very subjective issue which can usually be sidestepped by avoiding certain locations - the US is big enough, and Europe has the North Sea)

Altogether, wind seems to be an excellent deal for consumers - and an obvious pain (in terms of both lower volumes, and lower prices) for competing sources of power, except maybe those specialising in on-demand capacity.

In other words: sticking with mostly coal or nuclear is a political choice, not an economic one.

The cost of wind, the price of wind, the value of wind | 48 comments (48 topical, 0 editorial, 0 hidden)

Tip Jar / Seed comment (4.00 / 12)

This is a story I've been wanting to do for quite a while. I hope it can be used as a reference document. Comments and suggestions to improve it are welcome!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 11:26:39 AM EST

Crossposted (none / 0)

On dKos: link
On the Oil Drum link

Thanks for your support on dK.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 11:32:32 AM EST
[ Parent ]

Re: Tip Jar / Seed comment (none / 0)

Good article, but you have omitted or simplified some of the technical factors that might be viewed as externalities, but are still important. There's a good article in this month's IEEE Power and Energy magazine (unfortunately behind a firewall at http://www.ieee.org/portal/site/pes/) which goes into some detail on these issues, particularly as they relate to the interaction between various energy sources. A few of the relevant points they make include:

Time-of-day relationship between wind availability, solar availability, rotating generators, and demand. Solar supply usually peaks at noon, wind is skewed towards the afternoon, and demand peaks in the late afternoon, so you may still need to provide conventional power with its associated fixed costs. Or batteries, with several cost implications.
Similarly, if you add distributed renewable resources onto the distribution grid, the direction of power flow may change depending on the time of day. This causes all sorts of new problems in the area of voltage control, frequency control, and reactive power control. The fixes for these problems are not even very well understood from the theoretical viewpoint, and the required technology is still in development.
At the local level, if you plan to use distributed storage (for example, batteries in plug-in hybrid or electric cars) as supply leveling sources, then the neighborhood distribution grid has to be designed with considerable care. For example, at some times of day the power may mostly be flowing from the cars into the grid (to supply power for lighting), which means that the voltage gradient through the neighborhood is the opposite of what it normally would be.

Bottom line is that as the fraction of power supplied by non-traditional sources increases, the need for changes to the overall system design also increase.

None of this means that alternative energy is bad, on the contrary, it is obviously good that practical sustainable supplies are economically viable. What is needed, in addition to further investment in the technology at the source (wind turbines, PV, etc.), but also considerable attention to the regulatory environment that guides grid development and also to the technology that will support the future grid infrastructure.

Here's a link to a neighborhood-scale PV project in Freiburg, Germany that you are undoubtedly aware of; the power distribution system in that neighborhood was of a new design. As an example of the practical difficulties encountered, (quoting from the IEEE article): "Another interesting effect occurred in some of the residences where more frequent overvoltage disconnects were reported. Eventually, it was found that the connection from the inverters to the utility connection switchboard had been made with regular 1.5 mm2 wire [sic, probably 15 mm2] [instead of the specified 35 mm2 wire]. This wire size is sufficient for the expected current from the inverter, but too small to keep the voltage drop low enough."
http://www.werkstatt-stadt.de/en/projects/22/

While particular this example is specific to distributed PV, it is a related subset of the general problem of sustainable electricity supply. The cost of changing from wind to PV or whatever includes not only the cost at the source (including financing cost), but also the distribution cost and the costs of integrating it into a comprehensive system. As the case above shows, for example, you have a whole community of electricity installation tradesmen that has to learn new ways of doing things--obviously a costly proposal.

Which I think is what you are saying in your main article...

by asdf on Sat May 2nd, 2009 at 12:52:55 PM EST
[ Parent ]

asdf (none / 0)

all correct points, but I think they are, to a large extent, covered by the "cost of intermittency" (cost to the grid) item I mention in my article. New technical solutions do need to be found, but they are not that expensive.

As to voltage control and reactive power, wind turbines have pretty powerful electical control euipement, and actually help stabilize the network, by providing "islands of regulation" in isolated places of the network faraway from the main nodes. The French grid operatos, RTE, which used to be extremely wary of wind, is now happy to use it to keep the network humming.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 01:49:28 PM EST
[ Parent ]

Re: asdf (none / 0)

Maybe a message is that you can't just put in some windmills out in the boondocks somewhere and then put an electric car in your garage and be done with it. The entire system needs to be refreshed, from international regulations about toaster design to the wiring in residential neighborhoods and houses...

by asdf on Sat May 2nd, 2009 at 01:57:59 PM EST
[ Parent ]

Re: asdf (none / 1)

That's certainly true, but it would seem to be common sense enough!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 01:59:41 PM EST
[ Parent ]

Re: Tip Jar / Seed comment (none / 0)

Please excuse this drive-by comment, i've only had a quick read-thru and must be onward.

This article is great, with some minor editing. Thanks.

asdf's comments are valid, but are not completely relevant to the vast majority of installed windpower MW. There is a huge difference between connecting to a local distribution grid, as in pv, and the transmission grid, as in windparks.

the changes to the entire grid are already underway, and the smart grid concept has already taken root. But it is essential to realize that large windparks connect at much higher voltages on the transmission system, very rarely to distribution wires. different set of concerns.

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

by Crazy Horse on Sat May 2nd, 2009 at 04:03:47 PM EST
[ Parent ]

Re: Tip Jar / Seed comment (none / 0)

Note that in the US case, the analysis of the DoE "20% Wind by 2030" report was that rather than storage being required, the presence of the wind would shift the scheduling of dispatchable dammed hydro.

And in terms of political economy, once it is 20% of total US electricity supply, it will be a grown up industry with its own Congressmen and Senators on the payroll to look after the regulatory and infrastructure support needed to expand its share further.

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 Sat May 2nd, 2009 at 05:24:52 PM EST
[ Parent ]

Re: Tip Jar / Seed comment (none / 1)

absolutely true. holds true for Yurp too, when Norway is fully interconnected.

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

by Crazy Horse on Sat May 2nd, 2009 at 05:27:05 PM EST
[ Parent ]

Re: Tip Jar / Seed comment (none / 1)

I've found something really cool.

AWS Truewind has updated their maps and made many public.

Europe is spotty, but the US and elsewhere is awesome.

It has three hub height settings. (60, 80, and 100 m)

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sat May 2nd, 2009 at 04:00:19 PM EST
[ Parent ]

Re: The cost of wind, the price of wind, the value (none / 0)

Thanks for this comprehensive summary.

If this is used elsewhere though, it would be a good idea to proofread, e.g the repetition of 'as we'll see below'.

You can't be me, I'm taken

by Sven Triloqvist on Sat May 2nd, 2009 at 11:58:32 AM EST

Thanks very much for this article. (none / 0)

I've copied the address and will write a short cover letter to introduce it on several blogs.

Sven is correct, but do you have time to edit the - relatively small - few grammatical idiosyncracies? Would you like to have some assistance in that regard?

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sat May 2nd, 2009 at 12:20:39 PM EST

please, yes (none / 0)

all help welcome.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 12:44:11 PM EST
[ Parent ]

Re: The cost of wind, (none / 1)

Re the water cost of concentrated solar power, here's a resource:
http://ag.arizona.edu/AZWATER/awr/d3aa3f8e-7f00-0101-0097-9f6724822dfe.html

"A coal fired plant uses 110 to 300 gallons per megawatt hour; a nuclear plant uses between 500 and 1100 gallons/MWh; and a solar parabolic trough plant uses 760 -920 gallons/MWh."

When Arizona exports electricity to California, it is essentially exporting a considerable amount of water--water allocated to Arizona under the Colorado River agreement but "wasted" in the cooling systems of the coal, nuke, and concentrated solar generating systems.
http://apps1.eere.energy.gov/states/energy_summary.cfm/state=AZ

by asdf on Sat May 2nd, 2009 at 01:49:40 PM EST

Re: The cost of wind, (none / 0)

Oops, sorry about the duplicate comment on DK... :-)

by asdf on Sat May 2nd, 2009 at 01:54:36 PM EST
[ Parent ]

Re: The cost of wind, (none / 0)

hehe, beat you to it by a minute!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 01:59:57 PM EST
[ Parent ]

A fascinating page for UK readers (none / 0)

Instantaneous carbon intensity of your electricity consumption

With advice on when to switch your electricity-intensive activities, like machine-washing...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 2nd, 2009 at 04:24:05 PM EST

People who claim economic efficiency (none / 1)

is akin to a physical value like temperature should be prosecuted for fraud.

Very interesting post. The cost of capital is at the heart of the disfunction of the present system. Note how many billions of dollars were invested in fly-by-night money losing schemes by investment bankers who would have recoiled in horror from the prospects of a decent 3%/year profit with no risk from a wind plant.

by rootless2 on Sat May 2nd, 2009 at 10:35:34 PM EST

Yes, but (none / 1)

I'm all in favor of increased wind use, but...

1. A 20 year lifespan for the plants makes for an unfair comparison. Conventional power plants last much longer. There are coal/oil plants in the NYC area which are 50-75 years old and still in daily use. Even the local nuclear plant which was built to last for 40 years is pushing to be allowed to operate another 40 years.

So for a full lifecycle comparison you need to add in replacing worn wind turbines several times during this span. Given how much simpler wind generators are compared to fossil fuel plants, especially when you include the cost of fuel transport infrastructure and waste disposal, the construction cost seems out of line. The electric generators are of similar design and a big propeller is much cheaper than a furnace. So why are wind farms so costly? I see gouging going on by the suppliers. In other words they are pricing their equipment to be competitive against conventional generators. This is an instance where some government sponsored competition might prove beneficial.

Feed-in tariffs are designed to make bankers happy (sorry Jerome). The recent history of the energy markets has seen a shift away from long-term fuel supply contracts, until we got to the extreme of Enron where pricing was on an hourly basis. I don't see the other players in the field going along with such a model. As long as wind remains an insignificant part of the total capacity there won't be any resistance, but if it starts to make a real dent you can expect to see opposition from conventional energy suppliers who will claim that this is an unfair government-mandated subsidy.
It is certainly true that putting a price on externalities will make renewables more competitive, but economists have no good models for pricing non-renewable resources and so the policy decisions are not based upon any theoretical foundation. The prices charged for permits are more influenced by political considerations than anything else.
I'll repeat my usual mantra. No realistic amount of renewable power is going to become available in the next several decades. By realistic I mean enough to cause a substantial change in carbon emissions. Even an increase to 20-30% of world generating capacity will only compensate for the increased demand to be expected from the additional 3 billion people we will see populating the world. Instead of making things better all that will happen is that they will get worse more slowly.
The only solution is a change in our social/economic system away from consumerism and consumption-driven, raw material based, capitalism. As I've said many times before, I have no idea what a new system should look like, I just know that if no one is willing to contemplate such ideas we won't come up with anything. All efforts these days are devoted to re-inflating the capitalist bubble as quickly as possible. We need some new thinking, unconstrained by "conventional wisdom".

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun May 3rd, 2009 at 11:01:59 AM EST

well, you're actually wrong on all points! (none / 1)

wind is a low-density source. It's not surprising that it costs more per MW; but ultimately it is irrelevant (just as the 20 or 25 lifespan is irrelevant as long as the price per MWh or actual electricity works, and it does.
no, the feed-in tariff is required to provide a revenue to wind producers in a market environment where, as I explain, wind drags prices down for everybody. If you are in an integrated utility model where the utility can include wind power at its average cost over the long run (ie, the utility effectively internalises the feed-in regime), then you don't need a feed-in tariff, but until we do, it's required.

2bis) as noted in my text, wind is already cost-competitive with other technologies; it is its high fixed cost, lower marginal cost which makes it require a feed-in tariff, not its lack of competitivity. But there is no subsidy per se: as I note, the overall effect of the feed-in tariff is to lower the price paid by the rate payers who are bearing that tariff.

everything is driven by political considerations. Are you saying that the coal industry's priorities are more legitimate just because they've been imposed on us, politically, for much longer?
that's just not true. Wind wend from 0 to 10% of net generation in Germany and Spain without a crash programme. If wind was given the kind of political attention given to Russia or to nukes, it could go to 50% in surprisingly fast time. Again, it's technologically, economically and physically easy; it's the political will that's missing.
as you know, BruceMcF has been calling neolib economics "marginalist" economics. Repudiating these in the energy sector (which is what this debate is all about: wind is NOT a marginalist technology, thus its difficulty to be accepted by the incumbents and the ideologues) would go a long way towards defining new economics that make more sense.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun May 3rd, 2009 at 11:21:19 AM EST
[ Parent ]

who is Bruce McF? n/t (none / 0)

by rootless2 on Sun May 3rd, 2009 at 12:00:57 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

One of the regulars.

BruceMcF:

Obscure Development Economist, living in Ravenna ... though, as the Rubicon is nowhere in sight, its unlikely I will be crossing it anytime soon.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 3rd, 2009 at 03:21:10 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

Just in case it isn't obvious, I think that's Ravenna, Ohio.

by gk (gk (gk quattro due due sette @gmail.com)) on Sun May 3rd, 2009 at 03:29:57 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

Hence the difficulty in finding the Rubicon.

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 Sun May 3rd, 2009 at 08:30:09 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

No idea, never heard of him.

I took adopted the marginalist economists from Sraffa.

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 Sun May 3rd, 2009 at 03:59:03 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

thanks.

what strikes me about modern neoclassical economists is their twin delusion that all wealth is produced by finance and that finance operates on some fundamental laws of nature.

by rootless2 on Sun May 3rd, 2009 at 05:28:22 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

It comes from believing that money as such plays no fundamental role in the economy, but is only a veil covering trade in reals.

Perversely, without an ability to model stable macroeconomic levels of output below full employment, financial saving, receiving money incomes and not consuming them, is automatically freeing resources that will then be used in real investment.

With that automagic equation between monetary saving and real investment in place, its a short step to acting as if financial "investment" is identical to real investment.

These are all empirical fallacies that macroeconomists understood quite well after WWII ... there is no automatic tendency toward full employment, there is no automatic association between creation and trading of financial assets and actual investment in productive capacity ... but for decades now, mastery of the marginalist microeconomics at every greater levels of sophistication has been required to become a professional economist, while mastery of the rudiments of actual Keynesian economics has been entirely optional in ever more schools, and in the last two or three decades often entirely unavailable in the grad school curriculum.

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 Sun May 3rd, 2009 at 05:57:33 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

I also see a belief that everything is fungible and determined by investment price: "Intel constructed this factory for making chips with $1B investment" does not mean that any wannabe with $1B can make an equivalent factory.

by rootless2 on Sun May 3rd, 2009 at 07:20:16 PM EST
[ Parent ]

Re: who is Bruce McF? n/t (none / 0)

well give me a billion and I'll give it a try.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Sun May 3rd, 2009 at 08:17:41 PM EST
[ Parent ]

The fungibility is required to make the ... (none / 0)

... marginalist modeling tractable when extended to the whole economy. In the real world, there are lots of clumps of strong complements all over the place, and key concepts like the marginal productivity of individual inputs fall apart in the face of strong complements.

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 Sun May 3rd, 2009 at 08:29:07 PM EST
[ Parent ]

Re: well, you're actually wrong on all points! (none / 0)

Are feed-in tariffs a market designed structure or a government encouraged activity? I tend to think it is the latter. As I said, long-range contracts have gone out of fashion and this is atypical.

In fact it is almost a validation that the present wind plants being built are uneconomic over the long term. If they weren't they wouldn't need a guaranteed income stream. Instead we can expect to see the price of future construction drop as technology improves making cost recovery of existing plants impossible. You pointed this out yourself implicitly by saying that bankrupt wind farms would always be a good deal for later investors.

I have nothing against government sponsoring startup technology either directly through subsidies or indirectly through tax breaks or the like, but let's not pretend it is anything but an attempt to make uncompetitive technologies more competitive.

I'm all in favor of making conventional power generation more expensive by accounting for externalities. What I think is a fallacy is that this will per force lead to technological innovation. Economic forces can encourage innovation, but cannot guarantee it. The economists debating carbon tax vs cap and trade are leaving the hard issue of what happens next to someone else to deal with. It's a variation on the old economics joke "assume a can opener".

There's an old joke about three guys stranded in the desert, dying of thirst. They have a can of water -- but can't open it. One guy, an engineer, uses a stick as a lever and a rock as a fulcrum and ... nothing. The second guy, a physicist, does some calculations, drops the can from a predetermined height at a carefully considered angle and ... still nothing. Finally, the third guy, an economist, looks at the can and says: "OK. I have the solution. Assume a can opener."

I'm not trying to be discouraging. I'm quite pleased to see the progress you and your colleagues are making, but I think it has to be combined with more emphasis on reducing demand.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun May 3rd, 2009 at 01:20:45 PM EST
[ Parent ]

Re: well, you're actually wrong on all points! (none / 1)

Are feed-in tariffs a market designed structure or a government encouraged activity?

It is a way to structure a market, just like take-or-pay contracts are a way to structure the gas market. They are, of course, government designed, because the electricity market is government designed and operated (where it works, at least).

As I said, long-range contracts have gone out of fashion and this is atypical.

Your own example (Enron in California) is actually noteworthy here, in that long-term contracts did not "go out of fashion" with the market participants. They were forbidden by the regulators, because they were thought to stifle "competition." When this ban was lifted, the majority of the juice went back to being sold under long-term contracts.

In fact it is almost a validation that the present wind plants being built are uneconomic over the long term. If they weren't they wouldn't need a guaranteed income stream.

Huh? You mean, like Gazprom's insistence on take-or-pay contracts is evidence that gas extraction is uneconomical?

Instead we can expect to see the price of future construction drop as technology improves making cost recovery of existing plants impossible.

And so what? Should we stop making integrated circuits today, because we know that a cheaper, faster version will be available in six months? What's the point here?

You pointed this out yourself implicitly by saying that bankrupt wind farms would always be a good deal for later investors.

scratches head I don't get it. How do you get from there to here?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 3rd, 2009 at 03:33:50 PM EST
[ Parent ]

Re: well, you're actually wrong on all points! (4.00 / 3)

I would add that all markets are designed - some from scratch other by try and error. And today they are all in part designed by government. There has been examples of markets without an authority or even a common language but today that is quite rare.

I read about an small island in northern Sweden that was used for trade between locals and southerners with a simple system of placing items on a given date, leave for a day and then return. If there was any takers there was a pile of stuff next to yours. If you accepted you took that pile and left. If you wanted to barter you either decreased your pile or left it all. Anyhow you then left for a day. When you returned the other side had either made a new bid or taken their stuff back. I believe it was described in the 18th century (possibly Linneaus or one of his pupils) as having been around longer then anyone could remember. This is what I would call a market that was regulated, but without government.

You can also have trade without regulation - for example viking style - but a market implies something a bit more permanent. And then there is regulation.

Bit ot, but the "unregulated market" is an annoying term.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon May 4th, 2009 at 05:01:49 AM EST
[ Parent ]

An unfettered market normally means ... (none / 1)

... that the regulation is provided by the private participant with the most power.

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 May 4th, 2009 at 10:59:30 AM EST
[ Parent ]

well, not quite (none / 1)

In fact it is almost a validation that the present wind plants being built are uneconomic over the long term.

No.wind producers are economic on average but the way markets are sturctured means that there is price volatility, which they are not able to tolerate for very long. Gas is more expensive, but closer to market prices, and thus thrives more.

Is that what you mean by "economic"?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun May 3rd, 2009 at 04:04:16 PM EST
[ Parent ]

Re: well, you're actually wrong on all points! (none / 1)

The issue is the high fixed cost / low marginal cost cost structure of wind. The price required to bring the wind power onto the market is the marginal cost of production, but the marginal cost of production is below the replacement cost.

That means with sufficient market penetration that wind is frequently on the extensive margin, it can be non-commercial, even when it is clearly economic given that providing it at replacement cost plus a normal profit yields a net reduction in energy cost to consumers.

This is independent of the issue that the market, of course, is not capable of designing a complex system, and so either we must be content with the complex systems designed to support the interests of private corporate governments, or else must support a public role in the design of complex systems.

The establishment of subcontinental long hail electricity to pool wind and other renewable energy resources to reduce or eliminate intermittency is an example of the type of complex system that a pure market system is incapable of designing.

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 Sun May 3rd, 2009 at 04:32:00 PM EST
[ Parent ]

This is quite true ... (none / 0)

I'm all in favor of making conventional power generation more expensive by accounting for externalities. What I think is a fallacy is that this will per force lead to technological innovation.

Cap and trade, or even better cap and auction, or best of all cap and dividend, will harvest "low hanging fruit". However, without effective research and development in the New Energy Economy and investment in complementary infrastructure, the supply of "low hanging fruit" will run out and the cost of meeting a cap will be greater than it needs to be.

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 Sun May 3rd, 2009 at 06:02:04 PM EST
[ Parent ]

The Conundrum (none / 0)

Excellent article, and then some.

I would like to coin and use the term "Jerome's Conundrum" with regards to the bizarre way that lots of wind in a variable price market works:

"But the consequence of this is that the more wind you have into the system, the lower the price for electricity. With gas, it's the opposite: the more gas you need, the higher the price will be (in the short term, because you need more expensive plants to be turned on; in the long run because you push the demand for gas up, and thus the price of gas, and thus of gas-burning plants, up).

The conundrum: The more wind energy installed in a variable price market, the lower the marginal price, and the more likely it is that the wind plants will price themselves into bankruptcy.

In a more logical world/economy, that would not happen. That it does shows how screwed up these "competitive" electricity markets are - like New York State's "NYISO". Perhaps they can go the way of Milton Friedman.....6 feet under, as otherwise, its all these new wind turbine installations. Either that, or we get a Feed-In Law.

In NY State for April, 2007, the average NYISO price for electricity in the West Zone was 2.76 (with St Dev of 0.4c/kw-hr)....even coal will start to go belly up in that price range. Wind won't stand a prayer. And the nearby $500 million worth of newly installed wind farms will be on the auction block pretty soon unless things change really fast....maybe the new ~ 240 MW of wind farms is why this electricity price is so low...

Nb41

by nb41 on Sun May 3rd, 2009 at 10:29:53 PM EST

Euro-skepticism (none / 1)

Europe's green energy vision puts UK in dark
It is a dazzling vision of a clean energy future. An entire continent powered by solar panels, wind and wave turbines, geothermal and hydroelectric power stations -- and all stitched together by a European "supergrid" stretching from the sunbaked deserts of the south to the windswept North Sea, from the volcanoes of Iceland to the lakes of Finland.
It may sound like the stuff of science fiction but this is a vision that the European Union wants to make a reality. The concept is gaining ground among policymakers, including leaders such as President Sarkozy and Gordon Brown, who are concerned about Europe's carbon emissions and its steadily growing dependence on Russian gas.
(...)
The truth is that, despite the Government's talk of a green energy revolution, Britain's renewable energy industry is in crisis.
About 40 per cent of the UK's power stations were built before 1975 and urgently need to be replaced. But the combined impact of the credit crunch, falling oil and coal prices and the weaker pound now threaten to hold up wind projects just as the UK has raised its commitment to green electricity.
"The economics a year ago were already tight but the cost of capital and the foreign exchange movement have made it much harder," says Sarwjit Sambhi, director of power generation at Centrica, one of Britain's Big Six power companies, which is trying to build a 250 megawatt (MW) wind farm off Lincolnshire, big enough to supply 170,000 homes. "We are not going to make investments below our return on capital so my goal will be to spend as little as possible until the economics improve," he said.
(...)
Wind power, easily the most economically attractive form of renewable energy in the UK, remains hugely expensive when compared with gas and coal.
A recently approved gas-fired station in Pembroke will cost £1 billion and will be the largest in the UK, producing 2,000MW. It would cost six times as much to build a windfarm of similar capacity.
(...)
Until Europe's governments grapple with the fine detail of these issues, the Continent's dreams of a supergrid and a future free of fossil fuels are likely to remain in the realms of science fiction.

Beyond the ignorant confusion between cost per MW and cost per MWh, there's yet more of that "wind is unserious" mindset. Wankers.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 4th, 2009 at 08:04:43 AM EST

Re: Euro-skepticism (none / 0)

Jerome a Paris:

more of that "wind is unserious" mindset. Wankers.

it's the refusal to look at any interest other than the sheerly economic that is so galling. such a case of looking through the telescope from the wrong end!

such a reductionist mindset, entirely devoid of humanity...

this refusal, coupled with the convenient overlooking of externalities in coal and nuclear (plutonium or mercury, whee!), that makes some news for wind look dire.

i believe it's just foot-dragging by any other name.

great reference diary!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon May 4th, 2009 at 08:31:07 AM EST
[ Parent ]

Re: Euro-skepticism (none / 1)

And their view of "economic" is really "financial given a system dominated by large for profit banks that need high rates of return to counter losses on risky investments". Adam Smith would have been horrified.

by rootless2 on Mon May 4th, 2009 at 09:54:24 PM EST
[ Parent ]

Re: Euro-skepticism (none / 0)

Also note that apparently being dependent on Russian gas is preferable to being dependent on German gear boxes. That's about the only way I can translate the comment about the falling £: It makes the up-front cost of windmills (which, thanks to the UK's lack of energy policy for the last couple of decades, are not produced in the UK...) more expensive than the cement and steel (which presumably still is produced in the UK) needed for gas-fired power plants.

Not the geopolitical analysis I'd have made. But hey, I'm just a shill, lefty blogger...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 4th, 2009 at 05:02:56 PM EST
[ Parent ]

Re: Euro-skepticism (none / 1)

The UK doesn't need to manufacture gear boxes when it is the white hot center of financial innovation.

[Laughs sardonically ]

by rootless2 on Mon May 4th, 2009 at 10:13:52 PM EST
[ Parent ]

feed_in tariffs are not systematically net costs (none / 0)

There is an additional argument in favour of feed-in tariffs which is that they're usually considered as net cost for governments whereas they're not. Feed-in tariffs contracts are just a position which a government is taking on the cost of acquisition of energy in the long run. if markets goes up then you might end-up with contract at a lower cost rather than the price on markets and thus a net benefit. This is what French CSPE (the government fund which is paying for the fee-in tariff) experienced in 2007. The total "cost" of the micro hydro contracts was a fact a net benefit. More globally for those who believe in bullish energy markets, feed-in tariffs contract is a way for government to take a low risk long term position on the energy markets and could end up quite quickly in a significant profit generator (very true in my views for what's about buying wind energy at 80€/MWh).

by canopea (canopea@free.fr) on Mon May 4th, 2009 at 10:48:26 AM EST

There's a different between tariff contracts ... (none / 0)

... and feed-in tariff regulations.

The way that feed-in tariff regulations reduce cost is by encouraging the installation of capacity that displaces higher cost electricity when it is producing.

Of course, the level of feed-in tariff where that cost reduction occurs will depend in part on how many of the costs are counted.

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 May 4th, 2009 at 11:05:25 AM EST
[ Parent ]

The cost of wind, the price of wind... (none / 0)

Jérôme, you are a hero.

Now I need to either do a lot of translation, or teach English to a bunch of people.
Then get them to sit down and read.

Anyway, all those points are known to your regular readers, of course, but this is a great summary (possibly requiring some small additions that you call "common sense" yet are not necessarily obvious even to people working in the field -I know one such man in Australia, at any rate).

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon May 4th, 2009 at 04:39:19 PM EST

My take (4.00 / 3)

Thank you for this article. very informative

"it is its high fixed cost, lower marginal cost which makes it require a feed-in tariff, not its lack of competitivity."

rdf seem to be having a hard time understanding this.

rdf
Regarding
Yes, but

"As long as wind remains an insignificant part of the total capacity there won't be any resistance, but if it starts to make a real dent you can expect to see opposition from conventional energy suppliers who will claim that this is an unfair government-mandated subsidy."

What about the end users? The public? They will want what lowers overall prices, and that is wind.

" No realistic amount of renewable power is going to become available in the next several decades."

When the American public stops being fooled by the denial industry, and they understand the true danger from climate change, the political mood will change.
They have already fooled nearly half the population in the U.S., but you know what Abe Lincoln said about fooling people. I think denialists will lose credibility as the new administration sets the tone, rather than the anti science anti reason agenda of the last eight years.

Wind grew by 8.3 GW last year. At that rate it would be 100 GW by 2020. But the growth is just beginning and should surpass that annual growth. 20% wind by 2030 is not too opimistic. Between PV and CSP, solar could be as big or bigger. And all three will provide power cheaper than from new nuclear plants or coal with CCS.
By 2020, those two will not be able to compete with an kind of solar, or wind energy. And they are much quicker to build.

5.
"The only solution is a change in our social/economic system away from consumerism and consumption-driven, raw material based, capitalism. As I've said many times before, I have no idea what a new system should look like, I just know that if no one is willing to contemplate such ideas we won't come up with anything. All efforts these days are devoted to re-inflating the capitalist bubble as quickly as possible. We need some new thinking, unconstrained by "conventional wisdom".

While I wouldn't call it the "only" solution, I basically agree with this. Consumerism on steroids is our undoing. It wastes our money, energy, the environment and our resources.

These two books both speak to how we came to have this mindset in America.

"What is America?: A Short History of the New World Order" by Ronald Wright

"The Great Delusion" by Steven Stoll

asdf said
"When Arizona exports electricity to California, it is essentially exporting a considerable amount of water--water allocated to Arizona under the Colorado River agreement but "wasted" in the cooling systems of the coal, nuke, and concentrated solar generating systems."

But solar thermal (CSP) can be air or water cooled or Heller type systems. Most desert plants in the U.S. will not be water cooled from what I understand. On the other hand, where applicable, CSP plants can be used to desalinize water or provide combined heat and power, or even just heat. And the pilot plants in the Mojave are now co-fired with NG, which has worked well.

Could CSP help with California's water problems, particularly in Southern California?
We pump water from the aqueduct over Tejon Pass to LA now. Why not pump seawater to CSP plants further inland, and fresh water back to the cities?

With heat storage, CSP can provide dispatchable power, day and night. This makes it an enabler for balancing the grid.

http://www.altenergystocks.com/archives/2009/04/why_csp_should_not_try_to_be_coal.html

Why CSP should not try to be Coal.
"It should be clear that dispatchable generation is a truly premium power source. Dispatchable generation, like energy storage, long distance transmission, and demand response, all allow the grid to accommodate more variation in both power supplies and in demand.
Baseload power is part of the problem; it's not the solution. We should not denigrate CSP by pretending it is only a substitute for coal or nuclear. Concentrating Solar Power is much better than baseload."

Joseph Romm at Climate Progress points out that it is 20-100 times cheaper to store heat, as to store elecricity.

http://climateprogress.org/2008/04/14/concentrated-solar-thermal-power-a-core-climate-solution/

http://climateprogress.org/2008/11/21/solar-baseload-outshines-clean-coal-and-it-always-will/

The NREL says the added cost of heat storage is offset by the added value of this dispatchable power. And they say CSP projects will benefit California's economy far more than building new gas plants would.
They expect the cost of building CSP to fall quickly, as a result of experience gained and economies of scale.
CSP electricity prices are 12-17 cents/kWh. That's expected to fall below 10 cents/kWh quickly. My guess is by 2013. After that they expect economy of scale to bring prices down to 4-8 cents/kWh.

Their estimate for CSP potential in California's deserts is 661 GW, only considering land of less than 1% slope and avoiding environmentally sensitive areas.
California's current total generating capacity from all energy sources is 58 GW.

A Western Governors Association study estimated that the southwest states have suitable land near existing transmission lines for 300 GW of CSP.
Buildout could get a good start before HVDC lines became absolutely necessary. There are over 3 GW started building or recently agreed on. They will come online between 2011-2013.

I am writing from an American's perspective obviously, but the proposal by Desertec for Europe, North Africa and the Mid East hold great promise.

http://www.desertec.org/

http://www.trec-uk.org.uk/

rdf
regarding well, youre actually wrong...
"In fact it is almost a validation that the present wind plants being built are uneconomic over the long term. If they weren't they wouldn't need a guaranteed income stream"

How do you arrive at that conclusion? Did you read the article and understand it? Sure doesn't sound like it.

"I have nothing against government sponsoring startup technology either directly through subsidies or indirectly through tax breaks or the like, but let's not pretend it is anything but an attempt to make uncompetitive technologies more competitive.
but let's not pretend it is anything but an attempt to make uncompetitive technologies more competitive."

Actually, they might level the playing field against the political clout of the fossil fuel industry, which is the incumbant industry with unbelievable power in our government policy making. The most powerful non government economic force in the history of the world. They have been subsidized for 90 years. Their subsidies make those for renewables pale by comparison. Subsidies are a lousy argument against renewables. Nuclear has received $500 billion over 50 years.

Read the book "The Tyranny of Oil" by Antonia Juhasz

http://westcoastclimateequity.org/?p=2384
Global Warming Solutions for Governments

"Behind fossil fuels' global dominance lies the shocking fact that governments still subsidize them with tax-breaks and price supports, some dating back to World War I. The total global give-away to fossil fuels comes to more than $210 billion a year."

"In 2006, Earth Track estimated that the US oil and gas industry received $39 billion in federal energy subsidies, and the coal industry a further $8 billion."

http://www.heatisonline.org/contentserver/objecthandlers/index.cfm?ID=7124&Method=Full

"subsidy programmes from 1918 are still in place"
"I'm not aware of any oil and gas subsidy that has ever been phased out," said Koplow, the leading expert on U.S. energy subsidies"

"in a time of skyrocketing oil prices and profits, why did the George W. Bush administration in 2005 authorize an additional 32.9 billion dollars in new subsidies over a five-year period?"

"This massive government intervention distorts energy markets, making it very difficult for alternative energy sources to compete without similarly massive subsidies. "And it promotes America's addiction to oil," Larsen added."

Take all the subsidies from fossil fuels and put them into renewables and our energy system will be transformed very quickly.

And your argument, that renewable aren't competitive, continues to ignore the externalized costs of fossil fuels.

by Richard Mercer on Sun May 10th, 2009 at 03:24:08 AM EST

Re: The cost of wind, price of wind et. al. (4.00 / 4)

Excellent article on the economics of wind.

There seems to be a concerted effort now to devalue the role of wind with a constant lament about wind's intermittency.

Readers may be interested in link below to succinct new article which is a debunking of the common phrase "the wind only blows 1/3 of the time" often promoted by anti-wind pro-nuclear and Big Oil apologists (misconstruing the real meaning of 30% Capacity Factor for wind). This article also explores U.S. Dept. of Energy study's rationale for how wind can integrate into electric grid and supply up to 20% of U.S. electricity needs without using energy storage technology:

http://energyeconomyonline.com/When_the_Wind_Blows.html

Keep up the good work.

Craig Severance,CPA,Editor www.EnergyEconomyOnline.com

by cseverance (editor AT energy economy online DOT com) on Tue May 12th, 2009 at 01:05:08 AM EST

The cost of wind, the price of wind, the value of wind | 48 comments (48 topical, 0 editorial, 0 hidden)

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The cost of wind, the price of wind, the value of wind

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