September 29, 2020

The Real Cost of Wind and Solar

By Norman Rogers

The main problem with either wind or solar is that they generate electricity erratically, depending on the wind or sunshine. In contrast, a fossil-fuel plant can generate electricity predictably upon request. Blackouts are very expensive for society, so grid operators and designers go to a lot of trouble to make sure that blackouts are rare. The electrical grid should have spare capacity sufficient to meet the largest demand peaks even when some plants are out of commission.  Plants in spinning reserve status stand by ready to take over if a plant trips (breaks down). Injecting erratic electricity

into the grid means that other plants have to seesaw output to balance the ups and downs of wind or solar.

Adding wind or solar to a grid does not mean that existing fossil fuel plants can be retired. Often, neither wind nor solar is working and at those times a full complement of fossil fuel plants, or sometimes nuclear or hydro plants, must be available. Both wind and solar have pronounced seasonality. During low output times, as for summer wind, the fossil-fuel plants are carrying more of the load. Of course, solar stops working as the sun sets.

Wind behaves erratically hour to hour. Even though the Texas 18,000-megawatt system has thousands of turbines spread over a wide area, the net output is erratic changing by thousands of megawatts in a single hour. These shifts must be balanced by fossil-fuel plants slewing their output up and down to compensate and keep load matched to generation.

Even very sunny southwest cities have 50 or more cloudy days per year, stopping or reducing solar generation. Wind turbines are very sensitive to wind speed. A 10% change in wind speed will change power output by 30%, amplifying the erratic nature of wind.

The big picture is that when wind or solar is added to a grid it is supplemental power. No coal or gas plants are eliminated. Those plants have to stay in place to handle periods when wind and solar are not producing electricity. This does not stop claims that wind or solar is replacing fossil fuel, but it is fuel that is replaced, not fossil-fuel plants. When wind or solar is producing, the fossil fuel plants are throttled back and they use less fuel. If, for example, a coal plant was closed when wind was added to the grid, the safety margin would be compromised.

Viewed from the effect on the economy, adding wind or solar electricity provides the benefit of reduced fuel consumption in backup fossil fuel plants. This saving in fuel amounts to about $15 per megawatt hour, the cost of natural gas to generate a megawatt hour of electricity.  The cost of coal is similar. The backup fossil-fuel plant still has to have its full staff and may have more costly maintenance due to the up-down style of operation forced by the introduction of erratic energy. If the renewable energy costs more than $15 per megawatt hour, then it is not competitive. Wind or solar power actually costs around $80 per megawatt hour.

How can I claim that wind or solar cost $80 when power purchase agreements at $25 per megawatt hour are often touted in the press? Even at $25 the wind or solar is far from competitive. The gap between $80 and $25 is accounted for by subsidies. The $10 difference between $25 and $15 is also a subsidy because the purchaser is paying $25 for the electricity that could be generated in a backup fossil fuel plant, that already exists and that must exist, for $15. What are the subsidies that lower the $80 cost to the publicized $25?

The biggest and most important subsidy is not an explicit subsidy but a mandate. Thirty states have renewable portfolio standards. These are laws that require the utilities to supply a certain percentage of renewable power. For example, California has a law that 60% of its power must be renewable by 2030. The consequence of the mandate is that the utility has to grant whatever terms are required to convince investors to build the renewable power plants. In practice this results in the utility promising to purchase all the power generated for 25 years at a fixed rate. The contract is signed before a shovel of dirt is moved. Forcing utilities to buy renewable power puts the suppliers of renewable power in an advantageous position. The subsidy that reduces the cost from $80 to $25 are federal explicit subsidies, better financing, and lower required rate of return that results from having a 25-year contract in hand from a credit worthy utility. There is a federal tax credit that pays up to 30% of the plants cost. Additionally, there is a tax subsidy called tax equity financing that allows a highly taxed partner to the investor to divert money from the federal treasury to the project. This subsidy depends on special depreciation rules enacted by congress to subsidize renewable energy.

Wind or solar does not use fuel. The cost of the electricity is mostly determined by the capital cost amortized over the life of the plant. That in turn depends on the interest rate or discount factor. That factor is dramatically better due to the 25-year contract. If you take away the subsidies, renewable electricity, wind or solar, will cost about $80 per megawatt hour. Such comparisons are still dubious because there are no unsubsidized, utility-scale wind or solar plants. No utility would buy $80 renewable electricity to replace $15 fossil fuel electricity. A stand-alone, enterprise wind or solar plant would be a huge economic failure because there would be no market for overpriced electricity. The entire renewable electricity industry is actually a government boondoggle. Neither, is renewable electricity an economic method for reducing CO2 emissions as has been made clear by the most important proselytizers for global warming such as Climate Scientists for Nuclear.

Norman Rogers write often about renewable energy. His Inconvenient Facts About Dumb Renewable Energy is here.