Monthly Archives: March 2011

Twenty-nine States have passed legislation that requires utilities to sell or produce a certain percentage of electricity from renewable sources.   Electricity prices are higher in those states, partially due to these mandates.

According to the Institute for Energy Research these mandates are an expensive way to reduce carbon dioxide emissions.   In their posting The Status of Renewable Electricity Mandates in the States they note the following:

Some argue that renewable electricity mandates are a good way to reduce carbon dioxide emissions, but renewable electricity mandates are a very expensive way to reduce carbon dioxide emissions. According to the California Air Resources Board, it costs $133 per ton to reduce carbon emissions through the mechanism of a renewable electricity mandate. An internal Obama administration memorandum on subsidies for renewables recently noted that carbon dioxide emissions “would have to be valued at nearly $130 per ton for CO2 for the climate benefits to equal the subsidies.” To put these numbers in perspective, it currently costs about $15 a ton to purchase a certified carbon dioxide allowance traded on the European Climate Exchange.

There are currently no Federal renewable energy mandates. The Heritage Foundation has calculated the economic impact of enacting Fed mandates as follows:

Its researchers found that a mandate starting at 3 percent for 2012, and increasing by 1.5 percent per year until 2035, would:

• Raise electricity prices by 36 percent for households and 60 percent for industry;

• Cut national income (GDP) by $5.2 trillion between 2012 and 2035;

• Cut national income by $2,400 per year for a family of four;

• Reduce employment by more than 1,000,000 jobs; and

• Add more than $10,000 to a family of four’s share of the national debt by 2035.

Similarly, Credit Suisse estimated the capital expenditures necessary to achieve different levels of renewable generation by 2020. The bank noted that a nationwide 10 percent renewable electricity mandate would require capital expenditures of $350 billion, a 15 percent mandate would require $500 billion and a 20 percent requirement would require $750 billion. The California Air Resources Board has estimated that it will cost $115  billion in new infrastructure to meet California’s renewable electricity mandate in 2020 (33 percent).

I recommend that you open up this link to see how your State stacks up.

cbdakota

For this posting  I want to use my neighboring state of Delaware and the proposed off-shore wind farm as an example of what the rate payers in that state are facing.

Several years ago furious because of what happened when the price of electricity was deregulated Delawareans were led to believe they could protect themselves from this happening again by installing an offshore windfarm to produce “renewable” electricity.   Driven by the perception that the price of electricity would be less expensive and that it would help save the planet by reducing the electricity produced by natural gas or coal,  they willingly accepted the idea of offshore windfarm.  Moreover the State mandated that a percentage of the electricity used in the State had to be produced from “renewable” energy.

With much political pressure being applied, Delaware Power (the major Delaware Utility) began negotiations with Bluewater Wind (BWW).   Delaware Power reluctantly signed a contract to buy the electricity from this proposed wind farm.

Unfortunately for the Delawareans who thought the deregulated price of electricity was high, they are in for a bigger shock if they allow the BWW offshore windfarm to become a fact.  And wherever windfarms are installed, they are so unreliable that equivalent fossil fuel electrical generating capacity must be installed to protect the electrical users from interruption of their supply. This adds more cost and does nothing to reduce carbon dioxide emissions.

PRICE OF ELECTICITY FROM OFF-SHORE WINDFARMS

Lets look first at cost.   The Department of Energy’s Energy Information Agency says that without subsidies the price of electricity from offshore windfarms is not viable.  The following table is the EAI’s latest estimate of the cost of electricity production in 2016 when BWW says they will be producing electricity:

LEVELIZED COSTS OF ELECTRICITY IN 2016

Look at the column “Total System Levelized Costs” for conventional coal, and conventional combined cycle (in the Natural Gas-fired grouping) and then compare these costs to the levelized cost of Wind-Offshore:

Coal is $94.8 per megawatt hour or more familiarly  $0.095 per kilowatt hour.

Natural gas is $0.066 per kilowatt hour

Wind—Offshore is $0.243 per kilowatt hour.

To give you a little background on these numbers, the EAI penalized the natural gas and coal plants estimates with a cost of buying CO2 credits which would be necessary if the our country ever losses its mind and passes “cap and trade”. These penalties do not currently exist but are included anyway.

The Wind—offshore costs do not reflect the subsidies that the government is handing out to cover the real costs shown in this chart.

CAPACITY FACTOR AND ITS AFFECT ON COSTS

The capacity factor is a measure of the percentage of the rated capacity that can be depended upon.  The main natural gas and coal plants operate most of the time at a percentage of rated capacity in the mid to upper 80tys.  The Wind—offshore has a capacity factor of 39.3%.   From what one reads in the literature where actual performance of windfarms is recorded, the number of 39.3% vastly overstates their performance, which is often said to be in the 19 to 20% range.  Were the EAI to use the lower capacity factor,  the cost for wind produced electricity would be even more expensive than the $0.243 per kilowatt hour.

Several of the Natural Gas fired cases are nearly as high as the wind cases.  This is because these cases are for the backup turbine units that utilities must have to meet unexpected changes in supply or demand.  These natural gas turbines have capacity factors of 30% but can achieve a much higher number.  However, they are more costly to operate and are only used, as noted earlier, as backup.

The US has a vast surplus of natural gas.   The forecast cost to produce electricity in a natural gas based plant based upon the Department of Energy’s forecast in 2016, is about 27% of the offshore windfarm for that same year.  Will there ever be a time that these wind farms can compete in the market place or will we rate payers always have to subsidize them?

The fundamental problem with windfarms (and solar) is the fact that they can be working one minute and not the next.  The wind (or cloudless sunny days) can not be scheduled.  The electrical grid operators must be able to rely upon the electrical generation units to provide the power needed to match the user’s demands.  The low cost plants, fueled by coal, natural gas or nuclear are used as the base load.  They are steady and reliable.   These base load units are not capable of rapidly increasing or decreasing the generation of electricity.   Delaware Power, like other producers of electricity have units on hot standby that can be put into service almost immediately to meet peak requirements by their customers.  And as this demand drops off, they can easily be backed down as necessary to stay in balance.

Why have wind farms unless they can provide base load electricity?  They cannot because these farms can not control the wind.    Often when very cold or very hot weather  occurs, the wind does not blow at all.   So instead of base loading they are relegated to being spot suppliers. It is widely understood that, on balance, for every kw of wind farm capacity that is brought on line, the equivalent amount of natural gas turbine capacity must also be added.    For skeptics of the theory of man-made global warming, the fact that windfarms did not result in any less CO2 vented to the atmosphere, is not a big concern.   But it surely should give the believers in manmade global warming a big case of indigestion.

BLUEWATER WIND

Delaware has an excellent source of information about BWW in the “Inside Energy” blog published by the Caesar Rodney Institute.   Recently they posted a blog  RE: Prediction: Bluewater Wind Project Will Crash and Burn. The blog notes that 2016 is the earliest startup date and adds:

The earliest start-up date for the offshore wind facility is now 2016 when the price will be $.142/Kilowatt-hour (KWh). Similar projects off the coasts of New England and Europe have set contract prices between $.19 and $.24/KWh. There is nothing magic about the waters off the coast of Delaware to justify the difference in price.

The higher prices in other locations already account for government construction subsidies which will come to $800 million for the Bluewater Wind project. However, the subsidies only extend to facilities built by the end of 2011. The US Congress, exhibiting symptoms of subsidy fatigue, may not extend the subsidies further for a mature industry that accounted for 39% of all new generating capacity in 2009. So an even higher price increase may be needed to sustain the project next year.

The wind project is expected to provide about 1.1 billion KWh of electricity a year. Wholesale power from conventional sources costs about $.06/KWH. The “Green Premium” for offshore wind power could range between $.08/KWH and $.20/KWh at full price with no government subsidies. This will cost Delaware consumers between $90 and $220 million a year.

There will be hearings on BWW in May and you are encouraged to join with the folks from the Caesar Rodney Institute.  Regarding this hearing they add:

NRG, the owners of Bluewater Wind, will have to seek a significant rate increase to justify the investment in its’ Delaware offshore wind project. The attempt could fail bringing the project to an end. The good news is this will save Delaware electricity consumers hundreds of millions of dollars a year in avoided price increases and could save hundreds of jobs.

In a future posting, I want to let you in on the reasons why there are many big companies pushing these windfarm schemes on the rate payers.

cbdakota