The U.S. Department of Energy (DOE) keeps putting out reports that predict wind energy could reach over a third of the nation’s generation by 2050 using unrealistic assumptions regarding wind technology costs and the U.S. grid’s ability to handle a technology that is literally at the whim of the winds[i]. While wind power has no fuel cost, it is still more expensive than traditional generating technologies, which are needed to back it up when the wind is not blowing. Thus, the electric rate payer is paying for the cost of electricity twice—once to construct the wind turbine and then to maintain and/or construct the back-up technology needed to supply electricity when wind cannot. Other countries have tried achieving high shares of wind generation and are finding that their electricity rates are the highest in the world, that they cannot use all the wind energy they produce at the times when it is very windy and thus must export it, and that they are driving their industrial base to countries with more reliable and affordable generation sources.
Electricity prices in the United States are already increasing. According to the Energy Information Administration (EIA), average U.S. residential electricity prices in 2014 increased 3.1 percent over 2013 prices–the highest of any year since 2008 when prices rose 5.7 percent.[ii] This price increase is because electric utilities are forced to use more renewable energy and invest in energy efficiency and grid improvements. And, if President Obama has his way, this trend will continue.
The DOE report is part of the Obama Administration’s plan to make the public believe in the fantasy of lots of wind. But as the report notes, it can only happen if the government supports the technology with funding and favorable programs. To this end, the Obama administration’s fiscal year 2016 budget proposal requests $25 billion in “clean energy” tax incentives. If that budget gets approved, wind projects would be funded through DOE’s loan guarantee program and an extension of the production tax credit, which currently pays wind operators 2.3 cents per kilowatt hour for every hour of generation wind produces for the next 10 years. The Environmental Protection Agency’s proposed rule on existing power plants also supports wind energy production since one of its 4 building blocks for states’ compliance is to use alternative energy sources such as wind. According to the DOE report, wind power production will expand to all 50 states by 2050 from the 39 states that currently have wind power.
DOE’s Ridiculous Assumptions and Expectations for Wind
DOE’s report, “Wind Vision: A New Era for Wind Power in the United States” provides an optimistic projection of wind power supplying 10 percent of national end-use electricity demand by 2020, 20 percent by 2030, and 35 percent by 2050. Wind contributes just 4.5 percent of the nation’ electricity generation today, and EIA expects it to only supply a 4.8 percent share in 2040 based on current laws and regulations. In other words, if President Obama does not get his budget and regulations approved and lets the market determine how electricity gets produced, wind power will not even generate a 5 percent share by 2040.
To get to these high levels of wind generation, DOE assumes that wind power will achieve aggressive cost reductions and that fossil fuel prices will be high. For example, the report assumes the cost of generating wind onshore will be reduced by 24 percent by 2020, 33 percent by 2030, and 37 percent by 2050 and the cost of generating wind offshore will be reduced by 22 percent by 2020, 43 percent by 2030, and 51 percent by 2050. Fossil fuel prices delivered to electric utilities are expected to be $3 per million Btu for coal and $7 per million Btu for natural gas—an average gas price not seen since 2007 before hydraulic fracturing made its way into the natural gas production industry.
Top U.S. Wind States See High Electricity Prices
According to EIA data, electricity prices are already soaring in the states that generate the most wind power. U.S. electricity prices, on average, increased less than 3 percent between 2008 and 2013, but the 10 states with the highest percentage of wind power generation experienced average electricity price increases of more than 20 percent. Between 2008 and 2013, electricity prices increased an average of 20.7 percent in the top 10 wind power states—over 7 times higher than the national electricity price increase of 2.8 percent. With the exception of Oklahoma, every one of the top 10 wind power states had electricity price increases of at least 14 percent—at least 5 times faster than the national average.[iii]
|Top Ten U.S. Wind Producing States
|Wind Generation Share
|2008-2013 Electricity Price Increase
Source: Forbes, Electricity Prices Soar in Top Wind Power States, October 17, 2014, http://www.forbes.com/sites/jamestaylor/2014/10/17/electricity-prices-soaring-in-top-10-wind-power-states/
This has a devastating effect on consumer pocketbooks. In Minnesota, for example, where 16 percent of electricity is provided by wind and where electricity prices increased by 22 percent, electricity consumers spent $6.4 billion on electricity in 2013. If Minnesota’s electricity prices had increased at the national average rate from 2008 to 2013, Minnesota electricity consumers would have spent $5.4 billion on electricity– $1 billion less. Thus, Minnesota’s 2.1 million households each spent $476 more in 2013 than the average American household spent on electricity. This is $476 that Minnesotans did not spend on other goods and services.
Unfortunately, these price increases do not tell the whole story because they do not include any of the subsidies that taxpayers have provided wind. The production tax credit, for example provided the industry with a hidden cost to the taxpayer of 2.3 cents per kilowatt hour or about 20 percent of the average cost of electricity nationwide.
Furthermore, the switch from conventional power to wind power does not generate more jobs as the DOE wind power report likes to highlight erroneously. The DOE report uses the “Jobs and Economic development Impacts Model (JEDI)” to quantify job impacts. The problem is that the JEDI model only produces one outcome no matter the inputs—more jobs. As energy scholar Robert Micheals noted in testimony to Congress:[iv]
JEDI is structured, by NREL’s own admission, in a way that makes any outcome other than job creation mathematically impossible. It is thus a worthless tool for analyzing the actual employment effects of renewables, because it can only produce favorable ones.
“[t]here is nothing in the model that could conceivably decrease employment or output in other sectors of the economy. Any project consider by JEDI, no matter how efficient or inefficient as a source of electricity, will show a positive effect on employment. That increase may be large or small, but we can be certain that it will not be negative.”
By using the JEDI model, DOE is disregarding elementary economics. Shifting electricity production from conventional power to wind power does not create any net new jobs – it shifts jobs from the conventional power sector to the wind power sector. In fact, because of the large subsidies involved, jobs gains for wind come at the expense of jobs gains elsewhere in the economy as other industries are forced to pay higher taxes and higher electricity rates. Also, it also does not add manufacturing jobs because the world’s top 10 wind turbine manufacturers are mostly located outside of the United States in Germany, Denmark, and China. Only one is located within the United States.
Germany’s Wind Debacle
Instead of rosy and unrealistic scenarios that have little bearing on the real world, the DOE should have looked to the example of Germany. Germany has spent billions of euros on wind power and the Germans now have skyrocketing electricity prices—one of the highest in Europe–energy market chaos, and collapsing wind power companies. Germany embarked on a fast-track deployment of wind and solar power to replace its nuclear units after a tsunami hit nuclear generating units in Japan just 4 short years ago. But, Germany has found that its wind industry could not sustain itself when the country cut subsidies recently despite its wind industry indicating that wind power was competitive. Once subsidies were cut, the German wind industry began laying off workers. Further, areas of the country are finding that they do not have enough wind for their turbines to operate enough to make a profit. The German wind industry found that a turbine had to run a minimum of 1700 hours at full capacity each year in order to make a profit. But, in 2013, the average was barely over 1400 hours.[v]
With Germany’s wind debacle now clear to the rest of the world, other countries should learn a lesson and be more cautious about following a similar path. However, the Obama Administration is ignoring Germany’s lesson, after President Obama stated multiple times that we should look to Germany.[vi] The administration is putting itself on the same ruinous path to repeat the German debacle, and to do so on an even grander scale by the misrepresentations in this DOE report and by the proposed subsidies and regulations that it is promulgating.
DOE likes to create fictitious scenarios that show that wind power can reach a 35 percent share in this country by 2050. Yet, it is clear that to achieve that share, Americans will incur much higher electricity prices, exorbitant subsidies, and unnecessary regulations that will destroy other parts of the generating industry. The DOE report cites job increases as a reason for deploying wind power but jobs created in the wind power industry come at the price of eliminating jobs in the conventional power industry. Germany’s debacle should be proof enough that the DOE report is fantasy land and the United States should not follow in its footsteps.
[ii] Energy Information Administration, Growth in Residential Electricity Prices Highest in 6 Years, March 16, 2015, http://www.eia.gov/todayinenergy/detail.cfm?id=20372&src=email
[iii] Forbes, Electricity Prices Soar in Top Wind Power States, October 17, 2014, http://www.forbes.com/sites/jamestaylor/2014/10/17/electricity-prices-soaring-in-top-10-wind-power-states/
[iv] Institute for Energy Research, Testimony of Robert J, Michaels, September 22, 2011, https://www.instituteforenergyresearch.org/press/testimony-of-robert-j-michaels-subcommittee-on-water-and-power/
[v] Stop These Things, Germans Blame ‘Missing Wind’ for their Wind Power Debacle, September 24, 2014, http://stopthesethings.com/2014/09/24/germans-blame-missing-wind-for-their-wind-power-debacle/