Resource Documents: Economics (185 items)
Documents presented here are not the product of nor are they necessarily endorsed by National Wind Watch. These resource documents are provided to assist anyone wishing to research the issue of industrial wind power and the impacts of its development. The information should be evaluated by each reader to come to their own conclusions about the many areas of debate.
Author: Ongena, Jozef; István Markó; Koch, Raymond; and Debeil, Anne
If the aim is to decarbonize the electricity sector and phase out nuclear power, then renewable energy remains as the only source of electricity. As wind and solar photovoltaics (PV) are a major fraction (in Germany about 65% of the total renewable electricity production) one then must cope with strong intermittency. The consequences show up most prominently during dark and cloudy periods without wind.
The reality of this last statement is illustrated in Fig. 1, showing the evolution of the electricity production in Germany for January 2017. Due to lack of wind and sunshine in the second half of January most of the German electricity during that whole period was produced by conventional power sources – lignite, coal, gas and nuclear power. On the morning of the 24th of January 2017 a nearly total collapse of the German electricity supply took place. It could have had consequences throughout Europe and was only avoided by putting into operation all possible fossil power plants in Germany, including the oldest and dirtiest ones.
Fig. 1: Electrical power consumption and production in Germany (in MW) by various sources for January 2017: grid load (brown), sum of onshore and offshore wind (blue), solar PV (yellow), installed iRES [intermittent renewable energy sources] capacity (light green background color). Although the iRES capacity is exceeding the grid load, it could only provide a fraction of the German electrical power needs during this dark period without sufficient wind and most of the power was produced by conventional power sources (fossil and nuclear). Especially the period 16-25 January 2017 demonstrates the need for large additional backup power systems (that are evidently non-renewable) or storage.
This graph also leaves no doubt about the storage problem. During the 10 days between 16 and 25 January, equivalent to 240h, the difference between the iRES produced electrical power and the electrical power needs of Germany varied between 50 and 60GW, i.e. between 12000 and 14400 GWh of electrical energy was missing. German electrical storage systems could not have supplied this large amount of energy, as the total storage capacity in Germany is about 40GWh (mainly hydro). The missing electrical energy represents thus 300-360 times the German electrical storage capacity. Including also the 12 dark and wind still days in December 2016, the missing energy would increase to about 32TWh, i.e. about 800 times the currently existing storage capacity in Germany. Note that such long low iRES power production intervals are not an exception; similarly, long periods of low combined solar PV and wind power production were observed regularly in the past years, not only in Germany but in several EU countries and predominantly simultaneously, see also below. …
The electricity production from renewable systems is characterized by a low capacity factor. In Germany with its large fleet of wind and solar PV systems, this is ~15%, resulting from ~11% for solar PV and ~18% for wind (sum of offshore and onshore wind). The consequences are shown in Fig. 2, documenting the evolution in Germany of the installed capacity and power production from solar PV and wind; also indicated are the minimum and maximum power load of the grid. It is clear (i) that although the iRES installed capacity is huge (exceeding at the moment already the maximum power load on the German grid), its contribution to the German electrical energy needs is limited and (ii) that the peaks of the iRES production increasingly cross the lines of minimum load, thus leading to more and more excess production. For the moment export to neighboring countries is still a solution. But this will have to change when the iRES production in other EU countries also will increase in the near future.
Fig. 2: Electrical power production (in GW) by wind (blue) and the sum of solar PV and wind (red) compared with maximum and miminum grid load. As the installed renewable capacity increases, the minimum grid load is increasingly exceeded, leading to overcapacity and export of surplus energy, often at negative prices. …
Export of electricity is needed not only on days with a large iRES power production, but paradoxically also on days with a minimal iRES power production. Indeed, on such days the backup production is maximal and cannot be easily regulated in the short time intervals, which characterize the intermittency of the renewable power from sun and wind. At low iRES production most of the iRES power serves only to increase the export (in several cases at negative prices) as illustrated in Figs. 4a and b and discussed in detail in D. Ahlborn, H. Jacobi, World of Mining, Surface and Underground 68, 2-6 (2016). Thus it comes as no surprise that there is a clear correlation between iRES power production (low or high) and export of electricity from Germany, as illustrated in Fig. 4b. This power is not totally lost, as it can help other countries to reduce their CO₂ output. However, the German taxpayer pays for this, and such a solution can only be temporary. Contrary to what one would expect, these massive and rather unpredictable imports are not really welcomed in the concerned neighboring countries as (i) local power plants have to reduce or shut down, reducing their profitability, and (ii) it increasingly causes overloads in the national grids of those countries. For such reasons Poland and the Czech Republic are installing phase shift transformers at their borders (paid by Germany) to reflect any dangerously high excess electrical energy imports back to Germany.
Fig. 4a: Example of the time evolution of iRES renewable electricity production during a dark and wind still period and compared to the electricity export for Germany (16-25 Jan 2017)
Fig. 4b: Hourly correlation between electricity production from renewable sources (wind + PV) and electricity export in Germany (February 2015)
These exports can only be a temporary solution because the same weather patterns often cover large surfaces of Europe. The consequence thereof is illustrated in Fig. 5, showing a comparison between the instantaneous wind power production from Germany and the sum of the wind production in 15 other EU countries: except for Spain, the correlation in the electricity production between the different countries is clearly visible. Excess wind power in Germany signifies thus also excess wind power in neighbouring countries. The difference in the timing of the maxima and minima in wind production in Spain compared to the rest of Europe, can help to average the fluctuations to a certain, albeit limited extent. One could wonder if the averaging effect of solar photovoltaic power could contribute. In fact, such an effect is nearly absent, as shown by a recent study. The same study shows that if one would use a EU wide 100% iRES electrical network, able to transport excess electrical energy production between the various European countries, typical German grid fluctuations could be reduced by 35% and the maximal storage capacity by 28% (with a 30% fluctuation level on those numbers due the varying weather conditions from year to year). Interconnector lines with a capacity of tens to hundreds of GW will then be needed throughout Europe. The export (and storage) problem can thus indeed be somewhat reduced but they will be far from totally eliminated. Other solutions to avoid the enormous excess energy will have to be found.
Fig. 5: Instantaneous wind power production in MW in Germany (dark blue) compared to the wind power production from 15 EU countries (various colors), illustrating the close correlation between wind power Europe wide. This graph clearly shows consequences for export of excess intermittent electrical power between EU countries in the future, and the very limited extent of possible ‘averaging’ of excesses throughout Europe. …
A large fraction of the produced iRES power in Germany is exported. The export was nearly stable and negligible in the years before the massive introduction of renewable power and has increased ever since, with a rapid increase in the last 5 years up to about 25% of the produced renewable energy or about 55TWh (Fig. 8). The exported energy matches the yearly produced photovoltaic energy or 2/3 of the produced wind power. However, export of excess energy can only be temporary if renewable energy is to be deployed in all EU countries, given the strong correlation between the weather in neighboring countries as already discussed in Section 2.
Fig. 8. Evolution of the total iRES electrical energy production and net electrical energy export (in TWh) over the last 26 years in Germany. The total photovoltaic production (dotted orange curve) or 66% of the total wind energy production (dashed blue curve) follows remarkably close the export curve.
Go to original document: “Hidden consequences of intermittent electricity production”
Connecticut, Delaware, Economics, Emissions, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont •
Author: Stevenson, David
The nearly decade-old Regional Greenhouse Gas Initiative (RGGI) was always meant to be a model for a national program to reduce power plant carbon dioxide (CO₂) emissions. The Environmental Protection Agency (EPA) explicitly cited it in this fashion in its now-stayed Clean Power Plan. Although the RGGI is often called a “cap and trade” program, its effect is the same as a direct tax or fee on emissions because RGGI allowance costs are passed on from electric generators to distribution companies to consumers. More recently, an influential group of former cabinet officials, known as the “Climate Leadership Council,” has recommended a direct tax on CO₂; emissions (Shultz and Summers 2017).
Positive RGGI program reviews have been from RGGI, Inc. (the program administrator) and the Acadia Center, which advocates for reduced emissions (see Stutt, Shattuck, and Kumar 2015). In this article, I investigate whether reported reductions in CO₂ emissions from electric power plants, along with associated gains in health benefits and other claims, were actually achieved by the RGGI program. Based on my findings, any form of carbon tax is not the policy to accomplish emission reductions. The key results are:
- There were no added emissions reductions or associated health benefits from the RGGI program.
- Spending of RGGI revenue on energy efficiency, wind, solar power, and low-income fuel assistance had minimal impact.
- RGGI allowance costs added to already high regional electric bills. The combined pricing impact resulted in a 13 percent drop in goods production and a 35 percent drop in the production of energy intensive goods. Comparison states increased goods production by 15 percent and only lost 4 percent of energy intensive manufacturing. Power imports from other states increased from 8 percent to 17 percent.
David Stevenson is Director of the Center for Energy Competitiveness at the Caesar Rodney Institute. He prepared this working paper for Cato’s Center for the Study of Science.
Download original document: “A Review of the Regional Greenhouse Gas Initiative”
Author: Lesser, Jonathan
Abstract: In 2016, the New York Public Service Commission enacted the Clean Energy Standard (CES), under which 50% of all electricity sold by the state’s utilities must come from renewable generating resources by 2030, and emissions of greenhouse gases (GHG) must be reduced by 40%. The CES also incorporates New York’s previous emissions reduction mandate, which requires that the state’s GHG emissions be reduced 80% below 1990 levels by 2050 (the “80 by 50” mandate).
- Given existing technology, the Clean Energy Standard’s 80 by 50 mandate is unrealistic, unobtainable, and unaffordable. Attempting to meet the mandate could easily cost New York consumers and businesses more than $1 trillion by 2050, while providing scant, if any, measurable benefits.
- Meeting the CES mandate will require substituting electric-powered equipment for most existing equipment that burns fossil fuels (vehicles, furnaces, etc.), adding many billions of dollars in costs in both the private and public sectors. It will, in short, mean electrification of the New York economy, including most of the transportation, commercial, and industrial sectors.
- Even with enormous gains in energy efficiency, the mandate would require installing at least 100,000 megawatts (MW) of offshore wind generation, or 150,000 MW of onshore wind generation, or 300,000 MW of solar photovoltaic (PV) capacity by 2050. By comparison, in 2015, about 11,300 MW of new solar PV capacity was installed in the entire United States. Moreover, meeting the CES mandate likely would require installing at least 200,000 MW of battery storage to compensate for wind and solar’s inherent intermittency.
- Just meeting the interim goals of the CES of building 2,400 MW of offshore wind capacity and 7,300 MW of solar PV capacity by 2030 could result in New Yorkers paying more than $18 billion in above-market costs for their electricity between now and then. By 2050, the above-market costs associated with meeting those interim goals could increase to $93 billion. It will also require building at least 1,000 miles of new high-voltage transmission facilities to move electricity from upstate wind and solar projects to downstate consumers.
But none of the state agencies – NYDPS, the New York State Department of Environmental Conservation (NYDEC), and the New York State Energy Research and Development Authority (NYSERDA) – has estimated the environmental and economic costs of this new infrastructure. Such a large buildout of renewable infrastructure will surely have significant effects on agriculture, offshore fisheries, property values, human health, and biodiversity.
- As noted, the Clean Energy Fund’s 2030 energy-efficiency mandate calls for 600 TBTUs of savings in buildings. This mandate lacks economic justification and appears to be technically unreachable: the savings mandate is double the most optimistic projection of energy-efficiency potential in the state.
- NYDPS and NYSERDA have both claimed that renewable energy and the CES will provide billions of dollars of benefits associated with CO₂ reductions. Not so. Regardless of one’s views on the accuracy of climate models and social-cost-of-carbon estimates, the CES will have no measurable impact on world climate. Therefore, the value of the proposed CO₂ reductions required under the CES will be effectively zero. Moreover, even if there were benefits, virtually none of those benefits would accrue to New Yorkers themselves.
- Lower-income New Yorkers will bear relatively more of the above-market costs necessary to achieve even the interim CES goal. For example, absent significant changes to how retail electric rates are developed, affluent consumers who install solar PV will be able to “free-ride” on their local electric utilities, relying on those utilities to provide backup power when their solar systems are not providing electricity, while forcing other customers to pay for that electricity.
Jonathan A. Lesser, president of Continental Economics, has more than 30 years of experience working for regulated utilities, for government, and as an economic consultant. He has addressed numerous economic and regulatory issues affecting the energy industry in the U.S., Canada, and Latin America. His areas of expertise include cost-benefit analysis applied to both energy and environmental policy, rate regulation, market structure, and antitrust. Lesser has provided expert testimony on energy-related matters before utility commissions in numerous states; before the Federal Energy Regulatory Commission; before international regulators; and in state and federal courts. He has also testified before Congress and many state legislative committees on energy policy and regulatory issues. Lesser is the author of numerous academic and trade-press articles and is an editorial board member of Natural Gas & Electricity. He earned a B.S. in mathematics and economics from the University of New Mexico and an M.A. and a Ph.D. in economics from the University of Washington.
Download original document: “New York’s Clean Energy Programs: The High Cost of Symbolic Environmentalism”
Author: Tverberg, Gail
How should electricity from wind turbines and solar panels be evaluated? Should it be evaluated as if these devices are stand-alone devices? Or do these devices provide electricity that is of such low quality, because of its intermittency and other factors, that we should recognize the need for supporting services associated with actually putting the electricity on the grid? This question comes up in many types of evaluations, including Levelized Cost of Energy (LCOE), Energy Return on Energy Invested (EROI), Life Cycle Analysis (LCA), and Energy Payback Period (EPP).
I recently gave a talk called The Problem of Properly Evaluating Intermittent Renewable Resources (PDF) at a BioPhysical Economics Conference in Montana. As many of you know, this is the group that is concerned about Energy Returned on Energy Invested (EROI). As you might guess, my conclusion is that the current methodology is quite misleading. Wind and solar are not really stand-alone devices when it comes to providing the kind of electricity that is needed by the grid. Grid operators, utilities, and backup electricity providers must provide hidden subsidies to make the system really work.
This problem is currently not being recognized by any of the groups evaluating wind and solar, using techniques such as LCOE, EROI, LCA, and EPP. As a result, published results suggest that wind and solar are much more beneficial than they really are. The distortion affects both pricing and the amount of supposed CO₂ savings.
One of the questions that came up at the conference was, “Is this distortion actually important when only a small amount of intermittent electricity is added to the grid?” For that reason, I have included discussion of this issue as well. My conclusion is that the problem of intermittency and the pricing distortions it causes is important, even at low grid penetrations. There may be some cases where intermittent renewables are helpful additions without buffering (especially when the current fuel is oil, and wind or solar can help reduce fuel usage), but there are likely to be many other instances where the costs involved greatly exceed the benefits gained. We need to be doing much more thoughtful analyses of costs and benefits in particular situations to understand exactly where intermittent resources might be helpful.
A big part of our problem is that we are dealing with variables that are “not independent.” If we add subsidized wind and solar, that act, by itself, changes the needed pricing for all of the other types of electricity. The price per kWh of supporting types of electricity needs to rise, because their EROIs fall as they are used in a less efficient manner. This same problem affects all of the other pricing approaches as well, including LCOE. Thus, our current pricing approaches make intermittent wind and solar look much more beneficial than they really are.
A clear workaround for this non-independence problem is to look primarily at the cost (in terms of EROI or LCOE) in which wind and solar are part of overall “packages” that produce grid-quality electricity, at the locations where they are needed. If we can find solutions on this basis, there would seem to be much more of a chance that wind and solar could be ramped up to a significant share of total electricity. The “problem” is that there is a lower bound on an acceptable EROI (probably 10:1, but possibly as low as 3:1 based on the work of Charles Hall). This is somewhat equivalent to an upper bound on the affordable cost of electricity using LCOE.
This means that if we really expect to scale wind and solar, we probably need to be creating packages of grid-quality electricity (wind or solar, supplemented by various devices to create grid quality electricity) at an acceptably high EROI. This is very similar to a requirement that wind or solar energy, including all of the necessary adjustments to bring them to grid quality, be available at a suitably low dollar cost–probably not too different from today’s wholesale cost of electricity. EROI theory would strongly suggest that energy costs for an economy cannot rise dramatically, without a huge problem for the economy. Hiding rising energy costs with government subsidies cannot fix this problem.
Distortions Become Material Very Early
If we look at recently published information about how much intermittent electricity is being added to the electric grid, the amounts are surprisingly small. Overall, worldwide, the amount of electricity generated by a combination of wind and solar (nearly all of it intermittent) was 5.2% in 2016. On an area by area basis, the percentages of wind and solar are as shown in Figure 1.
There are two reasons why these percentages are lower than a person might expect. One reason is that the figures usually quoted are the amounts of “generating capacity” added by wind and solar, and these are nearly always higher than the amount of actual electricity supply added, because wind and solar “capacity” tend to be lightly used.
The other reason that the percentages on Figure 1 are lower than we might expect is because the places that have unusually high concentrations of wind and solar generation (examples: Germany, Denmark, and California) tend to depend on a combination of (a) generous subsidy programs, (b) the availability of inexpensive balancing power from elsewhere and (c) the generosity of neighbors in taking unwanted electricity and adding it to their electric grids at low prices.
As greater amounts of intermittent electricity are added, the availability of inexpensive balancing capacity (for example, from hydroelectric from Norway and Sweden) quickly gets exhausted, and neighbors become more and more unhappy with the amounts of unwanted excess generation being dumped on their grids. Denmark has found that the dollar amount of subsidies needs to rise, year after year, if it is to continue its intermittent renewables program.
One of the major issues with adding intermittent renewables to the electric grid is that doing so distorts wholesale electricity pricing. Solar energy tends to cut mid-day peaks in electricity price, making it less economic for “peaking plants” (natural gas electricity plants that provide electricity only when prices are very high) to stay open. At times, prices may turn negative, if the total amount of wind and solar produced at a given time is greater than the overall amount of electricity required by customers. This happens because intermittent electricity is generally given priority on the grid, whether price signals indicate that it is needed or not. A combination of these problems tends to make backup generation unprofitable unless subsidies are provided. If peaking plants and other backup are still required, but need to operate fewer hours, subsidies must be provided so that the plants can afford to hire year-around staff, and pay their ongoing fixed expenses.
If we think of the new electricity demand as being “normal” demand, adjusted by the actual, fairly random, wind and solar generation, the new demand pattern ends up having many anomalies. One of the anomalies is that required prices become negative at times when wind and solar generation are high, but the grid has no need for them. This tends to happen first on weekends in the spring and fall, when electricity demand is low. As the share of intermittent electricity grows, the problem with negative prices becomes greater and greater.
The other major anomaly is the need for a lot of quick “ramp up” and “ramp down” capacity. One time this typically happens is at sunset, when demand is high (people cooking their dinners) but a large amount of solar electricity disappears because of the setting of the sun. For wind, rapid ramp ups and downs seem to be related to thunderstorms and other storm conditions. California and Australia are both adding big battery systems, built by Tesla, to help deal with rapid ramp-up and ramp-down problems.
There is a lot of work on “smart grids” being done, but this work does not address the particular problems brought on by adding wind and solar. In particular, smart grids do not move demand from summer and winter (when demand is normally high) to spring and fall (when demand is normally low). Smart grids and time of day pricing aren’t very good at fixing the rapid ramping problem, either, especially when these problems are weather related.
The one place where time of day pricing can perhaps be somewhat helpful is in lessening the rapid ramping problem of solar at sunset. One fix that is currently being tried is offering the highest wholesale electricity prices in the evening (6:00 pm to 9:00 pm), rather than earlier in the day. This approach encourages those adding new solar energy generation to add their panels facing west, rather than south, so as to better match demand. Doing this is less efficient from the point of view of the total electricity generated by the panels (and thus lowers EROIs of the solar panels), but helps prevent some of the rapid ramping problem at sunset. It also gets some of the generation moved from the middle of day to the evening, when it better matches “demand.”
In theory, the high prices from 6:00 pm to 9:00 pm might encourage consumers to move some of their electricity usage (cooking dinner, watching television, running air conditioning) until after 9:00 pm. But, as a practical matter, it is difficult to move very much of residential demand to the desired time slots based on price. In theory, demand could also be moved from summer and winter to spring and fall based on electricity price, but it is hard to think of changes that families could easily make that would allow this change to happen.
With the strange demand pattern that occurs when intermittent renewables are added, standard pricing approaches (based on marginal costs) tend to produce wholesale electricity prices that are too low for electricity produced by natural gas, coal, and nuclear providers. In fact, wholesale electricity rates for supporting providers tend to diverge further and further from what is needed, as more and more intermittent electricity is added. The dotted line on Figure 2 illustrates the falling wholesale electricity prices that have been occurring in Europe, even as retail residential electricity prices are rising.
The marginal pricing scheme gives little guidance as to how much backup generation is really needed. It is therefore left up to governments and local electricity oversight groups to figure out how to compensate for the known pricing problem. Some provide subsidies to non-intermittent producers; others do not.
To complicate matters further, electricity consumption has been falling rapidly in countries whose economies are depressed. Adding wind and solar further reduces needed natural gas, coal, and nuclear generation. Some countries may let these producers collapse; others may subsidize them, as a jobs-creation program, whether this backup generation is needed or not.
Of course, if a single payer is responsible for both intermittent and other electricity programs, a combined rate can be set that is high enough for the costs of both intermittent electricity and backup generation, eliminating the pricing problem, from the point of view of electricity providers. The question then becomes, “Will the new higher electricity prices be affordable by consumers?”
The recently published IEA World Energy Investment Report 2017 provides information on a number of developing problems:
“Network investment remains robust for now, but worries have emerged in several regions about the prospect of a “utility death spiral” as the long-term economic viability of grid investments diminishes. The still widespread regulatory practice of remunerating fixed network assets on the basis of a variable per kWh charge is poorly suited for a power system with a large amount of decentralised solar PV and storage capacity.”
The IEA investment report notes that in China, 10% of solar PV and 17% of wind generation were curtailed in 2016, even though previous problems with lack of transmission had been fixed. Figure 1 shows China’s electricity from wind and solar amounts to only 5.0% of its total electricity consumption in 2016.
Regarding India, the IEA report says, “More flexible conventional capacity, including gas-fired plants, better connections with hydro resources and investment in battery storage will be needed to support continued growth in solar power.” India’s intermittent electricity amounted to only 4.1% of total electricity supply in 2016.
In Europe, a spike in electricity prices to a 10-year high took place in January 2017, when both wind and solar output were low, and the temperature was unusually cold. And as previously mentioned, California and South Australia have found it necessary to add Tesla batteries to handle rapid ramp-ups and ramp-downs. Australia is also adding large amounts of transmission that would not have been needed, if coal generating plants had continued to provide services in South Australia.
None of the costs related to intermittency workarounds are currently being included in EROI analyses. They are generally not being included in analyses of other kinds, either, such as LCOE. In my opinion, the time has already arrived when analyses need to be performed on a much broader basis than in the past, so as to better capture the true cost of adding intermittent electricity.
Of course, as we saw in the introduction, worldwide electricity supply is only about 5% wind and solar. The only parts of the world that were much above 5% in 2016 were Europe, which was at 11.3% in 2016 and the United States, which was at 6.6%.
There has been a lot of talk about electrical systems being operated entirely by renewables (such as hydroelectric, wind, solar, and burned biomass), but these do not exist in practice, as far as I know. Trying to replace total energy consumption, including oil and natural gas usage, would be an even bigger problem.
The amount of electricity required by consumers varies considerably over the course of a year. Electricity demand tends to be higher on weekdays than on weekends, when factories and schools are often closed. There is usually a “peak” in demand in winter, when it is unusually cold, and second peak in summer, when it is unusually hot. During the 24-hour day, demand tends to be lowest at night. During the year, the lowest demand typically comes on weekends in the spring and fall.
If intermittent electricity from W&S is given first priority on the electric grid, the resulting “net” demand is far more variable than the original demand pattern based on customer usage. This increasingly variable demand tends to become more and more difficult to handle, as the percentage of intermittent electricity added to the grid rises.
EROI is nearly always calculated at the level of the solar panel or wind turbine, together with a regular inverter and whatever equipment is used to hold the device in place. This calculation does not consider all of the costs in getting electricity to the right location, and up to grid quality. If we move clockwise around the diagram, we see some of the problems as the percentage of W&S increases.
One invention is smart inverters, which are used to bring the quality of the electrical output up closer to grid quality, apart from the intermittency problems. Germany has retrofitted solar PV with these, because of problems it encountered using only “regular” inverters. Upgrading to smart inverters would be a cost not generally included in EROI or LCOE calculations.
The next problem illustrated in Slide 6 is the fact that the pricing system does not work for any fuel, if wind and solar are given priority on the electric grid. The marginal cost approach that is usually used gives too low a wholesale price for every producer subject to this pricing scheme. The result is a pricing system that gives misleadingly low price signals. Regulators are generally aware of this issue, but don’t have a good way of fixing it. Capacity payments are used in some places as an attempted workaround, but it is not clear that such payments really solve the problem.
It is less obvious that in addition to giving too low pricing indications for electricity, the current marginal cost pricing approach indirectly gives artificially low price indications regarding the required prices for natural gas and coal as fuels. As a result of this and other forces acting in the same directions, we end up with a rather bizarre situation: (a) Natural gas and and coal prices tend to fall below their cost of production. (b) At the same time, nuclear electricity generating plants are being forced to close, because they cannot afford to compete with the artificially low price of electricity produced by the very low-priced natural gas and coal. The whole system tends to be pushed toward collapse by misleadingly low wholesale electricity prices.
Slide 6 also shows some of the problems that seem to start arising as more intermittent electricity is added. Once new long distance transmission lines are added, it changes the nature of the whole “game.” It becomes easier to rely on generation added by a neighbor; any generation that a country might add becomes more attractive to a neighbor. As long as there is plenty of electricity to go around, everything goes well. When there are shortages, then arguments begin to arise. Arguments such as these may destabilize the Eurozone.
One thing I did not mention in this chart is the increasing need to pay intermittent grid providers not to produce electricity when there is an oversupply of electricity. In the UK, the amount of these payments was over 1 million pounds a week in 2015. I mentioned previously that in China, 17% of wind generation and 10% of solar PV generation were being curtailed in 2016. EROI calculations do not consider this possibility; they assume that 100% of the electricity that is generated can, in fact, be used by the system.
The pricing system no longer works because W&S are added whenever they become available, in preference to other generation. In many ways, the pricing system is like our appetite for food. Usually, we eat when we are hungry, and the food we eat reduces our appetite. W&S are added to the system with total disregard for whether the system needs it or not, leaving the other electricity producers to try to fix up the mess, using the false pricing signals they get. The IEA’s 2017 Investment Report recommends that countries develop new pricing schemes that correct the problems, but it is not clear that this is actually possible without correcting the hidden subsidies.
Why add more electricity supply, if there is a chance that you can use the new supply added by your neighbor?
South Australia had two recent major outages–both partly related to adding large amounts of wind and solar to the electric grid, and the loss of its last two coal-fired electricity generation plants. The first big outage came during a weather event. The second big outage occurred when temperatures were very high during summer, and because of this, electricity demand was very high.
One planned workaround for supply shortages was natural gas. Unfortunately, South Australia doesn’t actually have a very good natural gas supply to operate its units generating electricity from natural gas. Thus, the available natural gas generators could not really respond as hoped, except at very high prices. Some changes are now being made, including a planned Tesla battery system. With the changes being made, there are reports of electricity rate increases of up to 120% for businesses in South Australia.
The irony of the situation is that Australia is a major natural gas exporter. Businesses expected that they could make more money selling the natural gas abroad as LNG than they could by providing natural gas to the citizens of South Australia. These exports are now being curbed, to try to help fix the South Australia natural gas problem.
These issues point out how interconnected all of the different types of electricity generation are, and how quickly a situation can become a local crisis, if regulators simply assume “market forces will provide a solution.”
An expert panel in Australia has recommended an approach similar to this. It simply becomes too difficult to operate a system with built-in subsidies.
Timing makes a difference. The payments that are made for interest need to be made, directly or indirectly, with future goods and services that can only be made using energy products. Thus, they also require the use of energy products.
There is a real difference between (a) looking at the actual operating experiences of an existing oil and gas or coal company, and (b) guessing what the future operating experience of a system operated by wind panels and solar panels might be. The tendency is to guess low, when it comes to envisioning what future problems may arise.
It is not just the wind turbines and solar panels that will need to be replaced over time; it is all of the supporting devices that need to be kept in good repair and replaced over time. Furthermore, the electric grid is dependent on oil for its upkeep. If oil becomes a problem, there is a real danger that the electric grid will become unusable, and with it, electricity that is generally distributed by the grid, including wind and solar.
Economies and humans are both self-organized systems that depend on energy consumption for their existence. They have many other characteristics in common as well.
We know that with humans, we really need to examine how a new medicine or a change in diet works in practice. For one thing, medicines and diets aren’t necessarily used as planned. Unexpected long-term changes occur that we could not anticipate.
The same kinds of problems occur when wind and solar are added to a grid system. We really have to look at what is happening to see the full picture.
Anyone who has followed the news knows about medicine’s long history of announcements followed by retractions.
A fairly similar situation can be expected to happen with proposed energy solutions.
There is a whole package of costs and a whole range of direct and indirect outcomes to consider.
As far as I know, none of the attempts at producing a system that operates on 100% renewable energy have been a success. There has been some reductions in fossil fuel usage, but at a high cost.
A 2013 Weissabach et al. EROI analysis examines a situation with partial buffering of wind and solar (approximately 10 days worth of buffering). It leaves out several other costs of bringing wind and solar up to grid quality electricity, such as extra long distance transmission costs, and more significant buffering to allow transferring electricity produced in spring and fall to be saved for summer or winter. These authors calculated a partially buffered EROI of 4:1 for wind, and a partially buffered EROI range of 1.5:1 to 2.3:1 for solar PV.
Of course, more investigation, including looking at the full package of needed devices to provide non-intermittent electricity of grid quality, is really needed for particular situations. Improvements in technology would tend to raise EROI indications; adding more supplemental devices to bring electricity to grid quality would tend to reduce EROI indications.
If the cutoff for being able to maintain a modern society is 10:1, as mentioned earlier, then wind and solar PV would both seem to fall far below the required EROI cutoff, if they are to be used in quantity.
If, as Hall believes, an EROI as low as 3:1 might be useful, then there is a possibility that some wind energy would be helpful, especially if a particular wind location has a very high capacity factor (can generate electricity a large share of the time), and if pricing problems can be handled adequately. The EROI of solar PV would probably still be too low in most applications. In any event, we need to be examining situations more closely, instead of simply assuming that hidden subsidies can be counted on indefinitely.
Gail Tverberg is a casualty actuary whose prior work involved forecasting and modeling in the insurance industry. Starting in 2005-2006, she decided to apply her skills to the question of how oil and other limits would affect the world. Besides writing on her own blog, Our Finite World, she is also an editor at The Oil Drum.
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