The American Wind Energy Association's (AWEA) newly released Annual Market Report for 2010 can be summed up in one word -- Spin!
We've tracked the wind industry's progress closely in the last six years and mapping our observations to AWEA's declarations is always a challenge. Their reports are packed with assertions but rarely include the data and assumptions on which claims are based. This year's report was no different. To illustrate the point, we thought it useful to examine some of the claims touted by AWEA.
High Cost, Low Value
With natural gas selling at record lows and supplies expected to be abundant through this decade, wind developers are under pressure from investors to secure power purchase agreements (PPAs) with utilities. Most PPAs for onshore wind we've reviewed lock in purchases for 15+ years at roughly twice the wholesale price of fossil and nuclear resources within their respective regions. In some cases the prices are fixed regardless the time of day the energy is delivered or number of years into the contract; others apply adjustments for on- and off-peak energy and may include annual escalators. In states where renewable portfolio standards have been adopted, utilities likely have no choice but to accept above market rates which are passed through to the rate base.
AWEA asserts that average power purchase agreements for wind generation in 2010 were priced around 6 cents per kilowatt-hour which it insists is the same wholesale price for combined cycle natural gas plants, and about 2 cents cheaper than coal-fired electricity. It might be true that PPA prices, on average, are around 6 cents per kwh but comparisons to natural gas and coal are not appropriate.
Within New England, wholesale pricing for onshore wind is between 9 and 11 cents per kwh. In the Midwest, contracts are around 6-7 cents and in regions with better wind regimes, gentler terrains and/or limited or no permit requirements the costs could run slightly lower.
But wind agreements are negotiated after a project has taken full advantage of available federal and state incentives so the costs of the incentives are not factored into the energy price. Other costs not accounted for include the build-out of wind-related transmission, system improvements to accommodate wind's intermittency and costs to cover capacity resources required during low wind conditions. These costs are ultimately imposed on rate and/or taxpayers outside the PPA.
The claim that PPAs are priced lower than coal-fired electricity makes no sense unless AWEA is comparing wind pricing to new coal plants and completely ignoring prices offered by existing generators. The Energy Information Administration (EIA) tracks wholesale power prices for six major electricity trading hubs around the U.S. and these data show prices ranging between 3 and 6 cents per kwh with New England on the high end and Ohio and Texas at the lower range. Clearly wind is more expensive than available energy resources even after applying governmental incentives.
And in an apples to apples comparison, wind energy is very expensive.
If we were to concede AWEA's claim that wind is priced on par with natural gas and cheaper then coal, what's our value proposition. Wind is not a capacity resource. It's not dispatchable. And in most parts of the country it delivers at the time of day and year when we least need the energy. Wind is inherently a lower value resource and in a more fair power market it should be priced below more reliable generation. But that's not what's happening.
20% wind by 2030?
AWEA insists the industry is on track to meet the Department of Energy's goal of 20% wind by 2030. Last year, we took a baby step by adding 5,116 megawatts of new wind bringing the total nameplate installed in the U.S. to 40,181 megawatts. But getting to DOE's goal (305,000 MW installed including 54,000 MW offshore) will require over 13,000 MW of new wind online every year for the next 20 years. And the entire wind fleet would need to operate at an annual average capacity factor of 43.4%. AWEA boasts that 2010 expanded the number of states with industrial scale turbines by 2 -- Delaware and Maryland -- but Delaware's contribution amounted to a single 2 megawatt turbine. You simply can't get 'there' from 'here'.
Delaware's one turbine triggered a lawsuit by residents living nearby over noise and legal nuisance claims. Opposition to wind energy proposals in general has intensified in the last few years and wind developers are feeling the effects of a growing backlash. Those who raise concerns about property values, health effects, the adverse environmental impacts etc. are more educated on the costs/risks of wind and are inclined to reject the degradation these enormous sprawling industrial complexes impose on communities and open lands. Building the next 40,000 MW of wind and related infrastructure will be much harder.
No offshore turbines exist in the U.S. nor is it clear any will go online soon. We've written extensively on the high-cost of the Cape Wind and Deepwater Wind proposals whose PPAs are under appeal. Last week, a Maryland Senate committee killed a bill backed by Democratic Gov. Martin O'Malley to implement offshore wind citing price as a factor.
Despite Interior Secretary Salazar's intention to fast-track offshore wind, the upward pressure these projects will impose on utility rates will prove a significant limiting factor.
Large Investment, Small Value
AWEA's report highlighted the industry's $10 billion investment in 2010 to install 5,000 MW. If we back out the nearly $3.4 billion in federal Section 1603 grants, the industry's contribution was closer to $6.6 billion. Our tax dollars picked up the tab for a third of the cost. Yet, what value did we get in return?
We've already examined the cost of wind and know the benefit is not economic.
What about the environmental payback? AWEA insists the U.S. wind power fleet will avoid an estimated 65 million metric tons of carbon dioxide annually. This assumes a megawatt hour of wind will back out a megawatt hour of fossil -- an overly simplistic concept that ignores the realities of energy dispatch. Nonetheless, if we assume AWEA's metric applies at all times, carbon allowances under the Regional Greenhouse Gas Initiative (RGGI) are trading at the floor price of $1.89/short ton. And since the CO2 cap under RGGI is already satisfied, the price is unlikely to go up this decade. Reducing CO2 emissions by 65 million tons should only cost $135 million -- a fraction the public dollars spent on wind development for 2010 alone. Clearly, there are far less costly, and more appropriate methods for reducing carbon then building massive wind towers everywhere we look.
Perhaps wind's value lies in job creation, but we're not so sure. Most jobs created by the industry are tied to construction and are temporary in nature lasting six months to two years.
In 2007, AWEA touted that the industry represented 50,000 direct and indirect jobs in the U.S., a figure that jumped to 85,000 in 2008 and held steady in 2009. In 2010, jobs dropped to 75,000 with roughly 20,000 in the manufacturing sector.
AWEA's annual report lists pages of facilities it claims are "US Wind Industry Manufacturing Facilities". Of the 450+ facilities listed (in some cases listing multiple facilities per company), a small fraction represents plants dedicated to building turbine parts (blades, towers, nacelles) including Vestas and Gamesa plants in Colorado and Pennsylvania respectively. The rest build components for industrial uses. Many have been in business for decades and their sole business is not wind-specific. AWEA omits any details showing the percentage of each company's gross revenues tied to the wind industry so verifying job counts is not possible. Apparently we're to take AWEA's assertions on face value. The problem is that these job numbers are repeatedly reported in the press and in government documents with the only substantiation being attribution to AWEA.
Wind construction jobs are not permanent so the industry would need to reach peak levels of development year after year just to maintain current job levels. When installations dropped in 2010, it was no surprise that jobs dropped as well. And since growing the manufacturing base is predicated on installing more wind turbines it's hard to see where job growth is sustainable.
[Note: job growth in the wind industry must be examined in terms of net growth for the overall economy. Studies have shown that shifting to alternative energies has resulted in either no net growth in jobs or a net reduction due to job transfers and higher energy prices.]
Despite billions in public funds pouring into the market in just the last few years, the wind industry is struggling in the face of lower energy demand and the corresponding drop in prices. AWEA never misses an opportunity to remind Congress that long-term renewable policies are needed to ensure wind's growth. But before our legislators ram through another round of incentives or extend existing policies, it's time they look past the distorted reality presented by the wind industry and understand the real costs of wind energy now borne by the American rate- and taxpayers.