Fact check: American Tradition Institute’s Taylor and Tanton blowing smoke on wind incentive
The Washington Times, which has carried many anti-wind columns over the past year, published another recently, filled with the usual errors, by George Taylor and Tom Tanton of the American Tradition Institute (ATI) concerning a recent report they have authored for ATI.
Wind energy’s primary incentive, the production tax credit (PTC), has only been consistently present since 2005, which means it has been available only for a full six years. The success which the wind energy industry has achieved in that short time frame (driving billions of dollars in new investments, significantly reducing costs, establishing a brand new manufacturing industry) has been truly remarkable.
However, what is particularly concerning is Messrs. Taylor and Tanton’s misunderstanding of how the power system works and how wind energy is producing significant savings for American consumers.
Real-world data confirm that wind energy’s costs are far lower than those claimed in the report, even before the report more than doubles the cost of wind energy for unjustified reasons. Reports from third-party sources confirm that wind energy is increasingly affordable:
- Lazard Levelized Cost of Energy V 6.0: According to Lazard, one of the world's preeminent financial advisory and asset management firms, renewable energy is already cost competitive with conventional energy resources in many markets. Renewables are beginning to match or beat fossil-fueled electricity on price, and with continued growth, deployment and innovation, renewables are becoming more widespread every day. In the words of David Eves, president and CEO of Public Service Co. of Colorado (PSCO), an Xcel Energy subsidiary, “[… R]enewable energy can compete on an economic basis with more traditional forms of generation fuel.”
- In 2011, Alabama Power, a subsidiary of Southern Company, made its first wind power purchase. In signing off on the contract, the state Public Service Commission noted that the “price of energy from the wind facility is expected to be lower than the cost the company would incur to produce that energy from its own resource … with the resulting energy savings flowing directly to the Company’s customers.” http://www.awea.org/learnabout/publications/factsheets/upload/Consumer-Benefits-Fact-Sheet.pdf
- In Colorado, in a late‐2011 order approving a wind power purchase by Xcel Energy, the state Public Utilities Commission stated that “the contract will save ratepayers $100 million on a net‐present‐value basis over its 25‐year term under a base‐case natural gas price scenario” while providing the opportunity to “lock in a price for 25 years.” http://www.awea.org/learnabout/publications/factsheets/upload/Consumer-Benefits-Fact-Sheet.pdf
- In early 2012, American Electric Power subsidiary Southwestern Electric Power Co. (SWEPCO) signed long‐term power purchase agreements for a total of 358.65 MW from wind projects in Texas, Oklahoma and Kansas. SWEPCO said in a news release that it estimated an average decrease in cost to its customers of about 0.1 cents per kilowatt‐hour over a 10‐year period starting in 2013. http://www.awea.org/learnabout/publications/factsheets/upload/Consumer-Benefits-Fact-Sheet.pdf
- When the Midwest grid operator recently obtained more than 25% of its electricity from wind, it noted that “Wind represents one of the fuel choices that helps us manage congestion on the system and ultimately helps keep prices low for our customers and the end-use consumer.” https://www.midwestiso.org/AboutUs/MediaCenter/PressReleases/Pages/WindOutputSurpasses10GW.aspx
All data indicates that wind energy is keeping electric bills low for consumers. Adding wind energy to the grid displaces the most expensive power plants first, so even modest additions of wind energy cause significant reductions in the electricity prices paid by homeowners and businesses. A May 2012 report by Synapse Energy Economics found that adding wind energy in the Midwest would save the average homeowner between $65 and $200 per year. Wind energy also protects consumers from volatility in the price of fossil fuels, much like a fixed-rate mortgage protects consumers from interest rate fluctuations. Energy Information Administration data confirms that the states with the most wind energy have kept their electricity prices significantly lower than states that have not developed wind energy. While the 30 states with the least wind energy saw their electric rates increase by 26.74% between 2005 and 2010, the top 20 wind states saw an increase of only 15.72%, and the top 10 wind states saw an increase of 10.94%, less than half the increase seen in the states with the least wind energy.
The ATI report’s doubling of wind energy’s costs is based on a fundamental misunderstanding of how the power system works. ATI more than doubles the cost of wind energy by claiming that wind energy must be paired with coal or gas generation, and that this is different from how conventional power plants are operated. ATI is wrong on both counts. All power plants fail from time to time and must work in concert to keep the power system reliable, so all power plants are backed up by all other power plants. In fact, it is far more costly to accommodate the unexpected and instantaneous failures of large fossil and nuclear power plants than to accommodate the gradual and predictable changes in wind energy output.
Adding wind energy to the grid does not cause any need for new power plant capacity, as grid operators can readily use the existing reserve power plants that they already use to accommodate large fluctuations in electricity demand as well as sudden failures of large fossil and nuclear power plants. Data from the California grid operator confirms that the state can obtain 33% of its electricity from renewables without any increase in the state’s need for power plant capacity, and that the reserve generation needed to reliably accommodate large fossil and nuclear power plants is a dozen times larger than the reserves that would be needed to integrate 33% renewables. Similarly, the Midwest grid operator has said on numerous occasions that it has been able to reliably integrate 10,000 MW of wind generation without any discernible increase in its need for reserve generation.
Because wind does not significantly increase reserve needs, ATI also fails in its claim that there is a significant decrease in the efficiency of fossil-fired power plants as wind energy is added to the power system. All data from grid operators, government entities, and utilities confirms that adding wind does not have a significant negative effect on the efficiency of fossil-fired power plants, and in fact much of the data indicates that wind energy may actually improve fossil plant efficiency because wind energy displaces the most expensive and thus least efficient power plants first.
In addition, upgrades to the nation’s obsolete and congested electric grid are needed anyway regardless of the addition of wind energy, and all studies indicate that these grid upgrades more than pay for themselves by providing consumers with access to lower cost generation, improving the efficiency of the grid, and increasing competition in electricity markets. To guarantee free market competition and keep electric rates lower for consumers, many states and regions like Texas have always broadly spread the cost of all grid upgrades for all energy sources, allowing mine-mouth coal plants and distant nuclear power plants to come online, so it is no surprise that the same policy is being used today for wind energy plants. The vast majority of electricity losses on the power system occur on the low-voltage power lines that run electricity to your house, with large transmission line losses accounting for at most a few percent of energy produced on the power system. Because transmission upgrades more than pay for themselves, any inclusion of transmission costs for wind should actually be factored in as a benefit.
As a result, each of ATI’s attempts to add a cost to wind energy fails due to a critical misunderstanding of how the power grid operates. We are left with the clear conclusion of third-party data and independent assessments: Wind energy is keeping electricity costs low for consumers.
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First Wind's Bull Hill project now on line, highlights wind's affordability, November 20, 2012
Fact check: Exelon-funded report inflates wind integration costs, November 2, 2012
Alabama Power 'doubles down' on wind, October 9, 2012
Fact check: American Enterprise Institute FAIL on study of wind costs, February 29, 2012
Is wind power holding electricity costs down?, January 3, 2012