The defenders of wind and solar claim that subsidies are a minor help to get a new industry going. These defenders counter critics with the fallacious claim that fossil fuels receive huge subsidies. Actually, the fossil fuel industry pays huge taxes.
Focusing on explicit subsidies is the wrong approach for understanding the subsidies provided to wind and solar. The explicit subsidies include such things as a 30% construction subsidy for solar and a 2.3-cent-per-kilowatt-hour subsidy for wind. Both technologies benefit from tax equity financing, a scheme based on special tax breaks and gaming the corporate income tax of a highly taxed corporate partner.
A better way to measure the wind and solar subsidies is to look at the benefits and losses to the economy. A net loss to the economy implies a subsidy. Once it is recognized that a subsidy is present, the next step is to figure out who is paying for it. Invariably, it is either the taxpayer or the consumer of electricity.
For example, if it costs $5 a bushel to produce soybeans, and they are sold in the soybean market for $4 a bushel, there is a net loss to the economy. Someone has to pay for the loss. That someone could be the farmers, soybean speculators, or taxpayers if the government subsidizes the loss. Selling soybeans for $4 that cost $5 makes the economy poorer.
Without subsidies, and in locations with good wind or sunshine, the cost of producing wind or solar electricity is about seven cents per kilowatt-hour. By coincidence, the cost is almost equal for the two technologies. These technologies don’t require fuel. Most of the cost is the amortization of the capital investment. If an installation has a useful life of 20 years, the annual, amortized cost of the electricity produced is essentially the annual payment on a 20-year mortgage to finance the project. Seven cents per kilowatt-hour is competitive with coal or nuclear and more expensive than natural gas. But, unlike conventional generating plants, wind or solar produces erratic electricity, that comes and goes, depending on wind and sunshine.
Wind or solar plants cannot displace conventional plants because the conventional plants have to stay in place as backup plants to supply electricity when the erratic wind or solar is not producing electricity. Although it is often claimed that wind or solar is replacing conventional generation, it only reduces the operating duty cycle of the conventional plants. The backup plants are usually natural gas plants, because natural gas plants are agile and able to follow the rapid ups and downs of wind or solar better than other types.
The economic benefit of wind or solar is fuel savings in the backup plants when backup plant electricity is displaced by wind or solar electricity. The cost of fuel for a natural gas plant is about two cents per kilowatt-hour. The difference, the seven-cent cost of generating wind or solar electricity, less the two-cent benefit for fuel saved, is a five-cent-per-kilowatt-hour subsidy for wind or solar.
Some real-world examples will further illustrate the point. Texas has a huge wind generation system with a capacity of 17,000 megawatts. On August 31, 2016 at noon, output from the wind system fell below 1% of capacity. The Texas wind system frequently has swings of thousands of megawatts within a few hours. It often produces at less than 5% of capacity.
On September 1, 2017, between 4 P.M. and 6 P.M., California experienced a record demand of a bit more than 50,000 megawatts. By 6 P.M., two thirds of solar generation was lost. By 8 P.M., all solar generation was lost, but demand was still 46,000 megawatts.
On August 2, 2017, the normally reliable California summer sunshine was interrupted by tropical monsoon weather in Southern California. Solar generation declined by half, and fossil fuel generation had to be mobilized to replace the lost solar.
Wind or solar is an appendage to the electrical grid rather than an essential part of the system. If all the wind or solar vanished, the grid would continue operation without the slightest problem, because the grid has to be able handle the load without wind or solar. Thus, wind or solar does not reduce capital investment for traditional generating plants. You may read in the press that coal plants have been replaced by wind or solar. That is never true.
Who bears the cost of the five-cent-per-kilowatt-hour subsidy for wind or solar? About three cents is probably accounted for by the explicit government subsidies; the other two cents is paid for by the consumers of electricity. The electricity that costs seven cents to produce has a five-cent subsidy, so approximately 70 percent of the cost is subsidized: 5 cents out of 7 cents.
For residential rooftop solar, the numbers are even more gruesome. Rooftop solar electricity, exclusive of subsidies, costs not seven cents per kilowatt-hour, but about 30 cents. These are small custom installations, and the capital cost is very high. But the benefit is still two cents per kilowatt-hour. The subsidy of 28 cents per kilowatt-hour is close to a 95-percent subsidy. This does not mean that the homeowner is providing the subsidy. Various explicit subsidies and the reality of tiered electric rates over 50 cents per kilowatt-hour, in places like California, can make it profitable for the homeowner to install a rooftop system. Everyone else pays for the homeowner’s special deal.
For solar or wind to be economically viable, either the cost per kilowatt-hour would have to be less than two cents or the cost of fuel in the backup plants would have to rise to seven cents per kilowatt-hour. Solar and wind are mature technologies with only modest prospects, according to the National Renewable Energy Laboratory, for lower costs in the future. Nor is it likely that the cost of natural gas is going to triple.
Believers in catastrophic global warming may justify the massive subsidies for wind and solar on the grounds that they displace emissions of CO2 from fossil fuel. The trouble with this idea is that wind and solar are expensive methods of reducing CO2 emissions. If you apply the five-cent-per-kilowatt hour subsidy toward reducing CO2 emissions, it turns out that the price paid to reduce a metric ton of CO2 emissions from a backup natural gas plant is about $140. You can buy a carbon offset from many suppliers that reduces CO2 emissions by a metric ton for about $10. The only practical method of greatly reducing CO2 emissions from electricity production is replacing fossil fuel with nuclear. Prominent believers in a future global warming catastrophe are supporting nuclear electricity, including James Hansen, Michael Shellenberger, and Stewart Brand.
The bottom line is that wind and solar are useless – a complete waste of money.
Norman Rogers has written the book Dumb Energy: A Critique of Wind and Solar Energy.
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