Probably the most common wind energy question that I receive from analysts, reporters, and interested citizens deals with the cost of electricity from wind. The frequency of the question is understandable since estimates provided by the wind industry, federal and state agencies and contractors, and the media understate the true cost and ignore the fact that electricity from wind is very low in value.
Typically, those asking the question would like a simple way to compare the cost of electricity from wind with the cost of electricity from other sources. Unfortunately, that isn’t possible. For those who insist:
Pervasive misunderstanding of the true cost and value of electricity from wind
In fact, few people in the general public, media or government know the facts about the high true cost and low true value of electricity from wind. For example, not long ago, the delegate to the General Assembly representing our district in Virginia stated repeatedly during a telephonic “town hall” that electricity from wind “is now competitive” with electricity from coal. The delegate has a degree in electrical engineering and a long record of accomplishments in electronics. His statement is consistent with claims often made by wind industry lobbyists but, unfortunately, the statement is false.
The delegate’s false statement is understandable since the US Department of Energy (DOE), DOE’s National “Laboratories” and other contractors (all paid with tax dollars), the wind industry; and other wind energy advocates have, for years, issued false and misleading claims about the cost and value of electricity from wind.
Critically important among the elements of true cost that are often understated or ignored by wind energy advocates is the huge cost of tax breaks and subsidies provided to the wind industry. Initially, tax breaks and subsidies for wind energy were justified on grounds that they were necessary to help an emerging technology compete with existing technologies for producing electricity until the technology was more thoroughly developed and demonstrated.
Federal, state and local government tax breaks and subsidies for wind energy have become so prevalent that it’s virtually certain that the politicians and regulators who provide them have no understanding of their magnitude and cost. It’s also virtually certain that they have not weighed benefits and costs. If they really have done either, there is no question but that they have decided to put the special interest of the wind industry ahead of the interests of taxpayers and electric customers who are paying for their largess.
Wind industry lobbyists have been exceedingly effective in winning huge tax breaks and subsidies from governments. When initially proposed, wind energy advocates argued that tax breaks and subsidies were necessary to permit a relatively “new and developing technology” to gain a foothold in competition with other sources of energy for producing electricity. However, industry demands for continuation, expansion and extension of subsidies have made it clear that there are no longer any serious expectations that wind energy is competitive or that improvements in the technology will eventually make it competitive.
Instead, it appears that the only hope that wind energy would become economically competitive with traditional energy sources is if the cost of electricity from traditional sources were driven much higher – with all the adverse impacts on electric customers and local and national economies that result from high electricity prices.
Improving public, media and political leaders’ understanding of wind energy costs and value
The false claims and the widespread misunderstanding about the full, true costs and the low value of electricity from wind demonstrate that it is time to focus on the facts. It would be “nice” if this could be done in a brief paper but brief papers have not been effective in getting through to people (particularly those in government and the media) who should be presenting the public and our political leaders with accurate information. Therefore, it apparently is necessary to “explain the basics” which, unfortunately, requires a long paper that delves into the details about the cost and value of electricity from wind.
Accordingly, this paper provides details on all the key factors that must be taken into account when making honest estimates of the true cost and value of electricity from wind energy. This paper will not provide numbers that can be compared because the development of valid and reliable cost and value data requires detailed information and assumptions that vary widely among “wind farms,” the generation mix and electricity supply and demand situation within electric grid control areas, and other factors.
Hopefully, once the factors that affect true cost and value of electricity from wind are understood, analysts, investors, reporters, and others interested in honest comparisons of costs and value will be able to make realistic estimates of at least the costs per kilowatt (kW of) wind generating capacity.
But, as explained below, reliable estimates of the cost per kilowatt-hour (kWh of) electricity produced by wind farms will still not be possible because such estimates are entirely dependent on factors that are and will remain unknown. Assumptions (i.e., guesses) made by those who claim they know the cost per kWh of electricity from wind can easily be in error by a factor of two or more.
Whether estimating the true cost of wind generating capacity or cost of electricity produced from wind, the cost of federal, state, and local tax breaks and subsidies are dominant factors. There is no longer any serious doubt but that tax breaks and subsidies – not environmental, energy, or economic benefits – are the primary reasons that “wind farms” are being built.
Six points critical to an accurate understanding of the high true cost and low value of electricity from wind
Comparing the “cost” of electricity from wind with the “cost” of electricity from reliable generating units is a classic “apples to oranges” comparison (or perhaps crab apples to oranges!). The things being compared may “look” similar but, in fact, are vastly different. In summary, and as detailed below, those making comparisons of the cost of electricity from wind often overlook four critically important facts:
Point 1: There is a fundamental difference between wind turbines and reliable electric generating units.
There is a vast difference between electric generating units that produce electricity only intermittently, such as wind turbines, and reliable generating units that can be counted on to produce electricity when it is needed. To be more specific:
In addition to keeping the grid in balance at all times, grid managers must also have reliable and dispatchable generating capacity in reserve , which capacity can be called upon immediately if there is an unplanned outage of one or more on line generating units (or transmission lines), or if there is a significant, unexpected increase in electricity demand.
The wind industry often pretends that this operating reserve of generating capacity should be or is a “free good” that should be available for its use – preferably at no cost – to make up for the fact that their wind turbines can’t be counted on to produce electricity when it is promised or needed (i.e., the turbines have little or no real capacity value), especially at the time of peak electricity demand. However, cutting into a grid’s operating reserve means that there would be less of a reserve available to its real purpose.
Point 2: Wind turbines have little or no “capacity value.”
A critically important factor affecting the true value of the capacity of any generating unit is how much of the unit’s “rated” or “nameplate” capacity can definitely be counted on to be available to generate electricity and how much it can definitely be counted to produce at the time of peak electricity demand in the control area. This measure is referred to in the electric industry as the unit’s “capacity value.”
In fact, regardless of their “rated” or “nameplate” capacity, wind turbines can’t be counted on to produce any electricity at the time it is most needed; i.e., when electricity demand reaches peak levels. Therefore, wind turbines really have little or no real “capacity value,” as that term is used in the electric industry.
Because wind turbines have little or no real “capacity value,” electric grid managers responsible for assuring the reliability of electric service must, instead, look to other generating units – i.e., those that are reliable and dispatchable for the capacity that is needed at the time of peak electricity demand. In most areas of the US, peak electricity demand is likely to occur in late afternoon on hot, weekdays in July or August.
When attempting to compare either the cost or value of electricity from wind turbines, it is important to recognize that the fact that wind turbines produce little or no electricity most of the time means that their “rated” or “nameplate” capacity is not comparable in value to the “rated” or “nameplate” capacity of a reliable generating unit. (A clear example of the “crabapple to orange” analogy.)
Point 3: Electricity produced by wind turbines – i.e., the kilowatt-hours (kWh) – has less real value than electricity produced by reliable generating units.
The true value of a kilowatt-hour (kWh) of electricity depends on when it is produced. Specifically, a kWh of electricity produced during periods of high or peak electricity demand has much higher value than a kWh produced when demand is low (e.g., during nighttime hours in most areas of the US).
This, too, is a critically important fact when attempting to compare either cost or value of electricity from wind turbines with electricity from reliable, dispatchable generating units. The fact is that electricity from wind turbines has a lower value per kWh because that electricity is not only intermittent, volatile, largely unpredictable and unreliable, but it is also most likely to be produced at night and in colder months when wind speeds are adequate to spin the blades, not at times of high or peak electricity demand.
Point 4: Large parts of the true capital and operating costs of electricity from wind are hidden because massive federal, state and local tax breaks and subsidies shift much of its true cost from “wind farm” developers and owners to taxpayers and electric customers.
Wind industry officials and lobbyists as well as the politicians, regulators, and other government officials, government contractors, and non-government organizations (NGOs) that support wind industry interests, often understate greatly the true cost of “wind farms” and electricity produced from “wind farms.” Sadly, some electric utility officials also participate in hiding the true costs of electricity from wind.
When initially proposed, the rationale for providing tax breaks and subsidies for wind energy was to help a relatively new technology for producing electricity compete with established electric generating technologies until advances in technology would permit wind to compete without subsidies.
However, the massive tax breaks and subsidies now available and the wind industry’s well-financed lobbying efforts to preserve, expand, and extend them makes clear that there is no longer any serious expectation that electricity from wind will become competitive or that significant advances in wind technology are likely to ever permit wind to become a competitive source of electricity.
The US Energy Information Administration (EIA), in an April 2008 report, indicated that federal tax breaks and subsidies during 2007 averaged $0.2337 per kWh of electricity produced by wind during 2007. However, that EIA report underestimated the true cost of the tax breaks and subsidies for wind because it:
Among the many federal, state and local tax breaks and subsidies that reduce “wind farm” developers’ and owners’ costs – while shifting those costs to ordinary taxpayers and electric customers – are the following:
|Deduction from taxable income||Further reduction in income tax
liability (in addition to PTC)
|Tax Year||% of Capital investment||Amount|
|6th||5.76%||$ 5,760,000||$ 2,016,000|
Note that these deductions from otherwise taxable income and from tax liability could be taken regardless of whether the $100 million “wind farm” investment is financed with debt or equity.
Note also that, in addition to the further reduction in tax liability, this generous accelerated depreciation deduction for federal income tax purposes has two other huge benefits; specifically:
Creating jobs was, allegedly, a key reason for the $787 billion “stimulus” legislation but most of “wind farm” projects included in the $1 billion in grants awarded by Treasury and DOE on September 1 and September 22, 2009, were for (a) projects that were already completed, nearly completed or already fully committed to by the grant recipients, (b) were equipped with turbines manufactured primarily in other countries, and (c) were owned by foreign-based companies. Furthermore, “wind farms” result in very few new jobs, certainly fewer than would be created by similar investments in reliable generating units powered by traditional energy sources.
(Clearly, any claim that the huge expenditure of tax dollars that were given to owners of “wind farms” would provide significant job and economic benefits in the US cannot be taken seriously.)
Presidential Executive Order 13423, issued in January 2007, requires that at least one-half of the required electricity from renewable energy come from “new renewable sources.” In fact, much of the electricity from “renewable energy” purchased by federal agencies comes from wind turbines. Like mandated state “green energy” programs, this federal requirement in effect requires that federal agencies pay premium prices for part of the electricity they use, thus creating a special, high priced market that is available to “wind farms.” The higher-than-market premiums that must be paid for electricity from wind are another subsidy for the wind industry. The higher prices are paid from agency appropriations which are financed through tax dollars.
The application process conducted during the fall of 2009 resulted in the selection of dozens of projects that apparently exhausted the $2.3 billion authorization. Projects selected for this new tax break included 33 projects involving wind turbines, bearings, towers, and blades totaling more than $250,000,000. Treasury and DOE have announced that no more applications are being accepted for this program. However, President’s FY 2011 budget requests an additional $5 billion for the program.
At least four of the above state requirements (6, 7, 8 and 9) have the effect of creating a special market where owners of “wind farms” and other renewable energy facilities can sell their electricity at above market prices. Of course, the electricity actually used by customers paying extra for “green” electricity is highly unlikely to be produced by a “renewable” energy facility. The owners can receive the higher, above market prices for the electricity they produce even if their facilities are not producing at the time the electricity is being used.
Utilities’ “green energy” programs are seldom self supporting. That is, the amounts collected in premiums from customers who agree to pay extra are not adequate to cover (i) the higher costs of the “green energy” and (ii) the utility’s cost of administering the “green” program. Costs not recovered from premium payments are merely passed along to all of the utility’s customers.
PILOTs are attractive to “wind farm” owners because their cost over the assumed life of the “wind farm” are much less than paying property taxes and the “front-end” benefits are often helpful in gaining support for projects from current town officials and, perhaps, citizens who do not take into account the lower long term benefits or impacts.
Point 5: Other important elements of the full, true cost of electricity from wind are often hidden or ignored by wind energy advocates.
Tax breaks and subsidies are not the only elements of the full, true cost of electricity from wind that are not transparent and that are often ignored by wind energy advocates. For example, additional elements of the full, true cost of electricity from wind include:
Grid managers must have available and under their control reliable generating units that can be ramped up or down (i.e., output increased or decreased) or brought on line (start producing) or taken off line (stop producing). Ramping up and down to balance volatile wind turbine output may add to wear and tear on the backup units.
A critically important objective in electric grid management is to have sufficient operating reserve capacity available to keep electric service reliable and keep the grid in balance in the event that key generating units (or transmission lines) unexpectedly become unavailable (e.g., mechanical failures or other “unplanned outages”), or if there is a significant, unexpected increase in demand. Wind industry advocates often assume, incorrectly, that this critically important grid operating reserve should be available as a free backup or balancing service for the intermittent, volatile, and unreliable output of wind turbines.
Providing balancing and backup capability for intermittent, volatile, and unreliable wind turbine output involves cost that is properly considered a part of the cost of electricity from wind. For example, units that are available for ramping up must be running at less than full capacity and, therefore, at less than full efficiency. Units that are ramped down also run at less than full capacity. Units that are available to bring on line are likely to be running in “spinning reserve” mode (i.e., connected to and synchronized with the grid but inputting little or no electricity) and using some fuel and putting out some emissions. These costs are really a part of the true cost of electricity from wind.
Furthermore, if adequate capacity from reliable generating units is not available, backup capacity would have to be constructed resulting in additional costs that are, at some point, passed on to customers. It must always be recognized that wind turbines do not provide reliable, dispatchable generating capacity and they cannot be counted as a substitute for such reliable capacity.
The “challenges” of integrating into electric grids the intermittent, volatile and unreliable output from wind turbines has finally been acknowledged by the Chairman of FERC in a January 21, 2010, statement announcing a FERC Notice of Inquiry. Hopefully this proceeding will lead to greater official and media candor about the challenges of integrating the output of “wind farms” into electric grids.
Some areas where substantial wind generating capacity has been built or is proposed require major increases in transmission capacity (e.g., Texas) to serve the “wind farms.” While the cost of building the additional capacity is clearly a cost that is properly attributed to the cost of the electricity from wind, the wind industry seeks to avoid this cost and have it allocated to – i.e., charged to – electric customers as a part of their month bills as if it is a “normal” part of the cost of providing their electric service.
Sadly, some public utility regulators have acceded to the wishes of the wind industry. Billions of dollars are involved but the wind industry and utility commissioners hide the enormity of the costs by spreading them over all the electric customers in the area. Once again, regulators are providing another huge subsidy to the wind industry rather than protecting electric customers.
Point 6: No one really knows the true cost per kilowatt-hour (kWh) of electricity from wind turbines because all estimates of such costs are based on highly questionable assumptions – really guesses – that are untested.
Many claims are made about the cost per kilowatt-hour of electricity produced from wind but, in fact, no one really knows the true cost.
Anyone interested in the facts should be very wary of claims made by the wind industry, its supporters employed by the federal and state governments, the DOE National “Laboratories” or other wind energy advocates. Data reported by the media are invalid because they typically are parroted from one of these sources.
A true, meaningful calculation of the cost of per kWh of electricity produced by wind turbines inevitably requires data that can be known only on an after-the-fact basis. Claims that have been made about costs per kWh of electricity from wind turbines are rough estimates based on assumptions (guesses) and often do not include all elements of cost.
Key factors that cannot be known in advance include at least the following:
None of the wind turbines of the type now being installed in the US have operating histories long enough to provide valid, reliable estimates for these factors.
Claims that are made by wind energy advocates typically include assumptions about O&M costs and replacement costs, useful life (often assumed to be 20 years), and capacity factor (often assumed to be something in the range of 25% to 35%).
Two highly simplified examples illustrate the extent to which cost per kWh calculations can be misleading if before-the-fact guesses prove incorrect. In these simplified examples which uses a rough estimate of one element of cost (i.e., overnight capital costs), only one key factor – the estimated useful life of the turbines – is changed but the impact on cost per kWh is doubled.
|Example #1||Example #2|
|Capacity of “wind farm” (kW)||50,000||50,000|
|Assumed capacity factor||30%||30%|
|Annual electricity production (kWh)||131,400,000||131,400,000|
|Assumed useful life||20 years||10 years|
|Electricity produced during useful life (kWh)
(131,400,000 × years of useful life)
|Overnight Capital Cost||$100,000,000||$100,000,000|
|Overnight capital cost per kWh during useful life||$0.038 per kWh||$0.076 per kWh|
There is one potentially promising development in the long standing saga of DOE-NREL misinformation about the cost per kWh of electricity from wind. That is, a highly misleading, fact less, assumption based graph showing an 80% decline in the cost of electricity from wind – with further declines likely – apparently has been abandoned. Even the highly biased DOE-EERE folks admit that their data show the cost per kWh of electricity from wind has been rising, not falling. Unfortunately, there seem to be hundreds of reporters who remember the misleading graph and false 80% decline claim and will continue parroting that claim for years to come.
The preceding points are focused on financial cost and value, not externalities.
The foregoing discussion has been focused on the financial costs of producing electricity and the financial value of that electricity. It has not dealt with external costs, commonly referred to as externalities; i.e., the costs not reflected in the price charged for the electricity.
A discussion of externalities associated with each source of energy used to produce electricity is far beyond the scope of this paper. However, it should be noted that wind energy advocates generally assign high externality values to other sources of energy while assigning none for wind energy. In fact, producing electricity with wind energy does impose external costs, including adverse impacts on environmental, ecological, scenic, and property values.
Examples of adverse environmental and ecological impacts include noise, dead birds and bats, destruction of vegetation and disruption of ecosystems and wildlife habitat, and nuisance impacts such as shadow flicker. Claims that “wind farms” do not adversely affect neighbors’ property values, such as those made recently in a report from the Lawrence Berkeley National “Laboratory” (LBNL) defy common sense and facts evident from around the world.
Fortunately, media stories reporting on the adverse impacts of “wind farms” have begun to appear in the media and even in the Journal of the American Bar Association.
There are no longer any serious questions but that:
February 4, 2010
Download original document (with footnotes and references): “True Cost of Electricity from Wind Is Always Underestimated and Its Value is Always Overestimated” 
URL to article: https://www.wind-watch.org/documents/true-cost-of-electricity-from-wind-is-always-underestimated-and-its-value-is-always-overestimated/
URLs in this post:
 Download original document (with footnotes and references): “True Cost of Electricity from Wind Is Always Underestimated and Its Value is Always Overestimated”: https://docs.wind-watch.org/Schleede-High-Cost-Low-Value-Electricity-from-Wind.pdf