Reality vs. Theory in RPS Costing

Despite a steep fall in wind-energy prices [1], there is still some dispute whether wind is competitive with conventional fossil fuels. There is a simple way to resolve this issue – compare the prices for electricity generated by wind with that by conventional fuels. A calculation made for the Great lakes region (IL, In, MI, Oh, & WI) found that wind was cheaper, with the difference about equal to the wind subsidy [2].

Analyses that claim wind is expensive use the levelized cost of energy (LCOE), which estimates theoretically the cost to produce electricity using various technologies. The most recent LCOE data show wind to be competitive with fossil fuels, even without the subsidy [3, 4] – the same conclusion reached by price analysis. However, there are two reports [5, 6] that claim that wind causes Ohio’s renewable energy portfolio to be expensive and harm the state’s economy. Serious errors exist in both reports:

  1. LCOE greatly overestimates the price of electricity produced by wind [7].
  2. LCOE values differ from report to report [3, 4]. Both Ohio reports [5, 6] used high LCOE values, without justifying their choice.
  3. References [5] and [6] both use out-of-date LCOE data. As noted above, the 2015 costs show wind to be competitive without subsidy, making the portfolio cost-free using their assumptions.
  4. Portfolio requirements are mostly fulfilled by renewable energy certificates, not by wind farm construction [8].

 

There was a time, several years ago, when wind was expensive. Politicians opposing renewable energy pretend that those days are still with us. They need to address a simple question: if it costs $75 per MWh to produce wind electricity [3], how can the producer sell it at $50 per MWh [3], lose 33 cents on the dollar, and still stay in business?

 

References

[1] Sally A. Talberg, et al., Report On The Implementation Of The P.A. 295 Renewable Energy Standard And The Cost-Effectiveness Of The Energy Standards, Michigan Public Service Commission, February 12, 2016

[2] Alanpeg (Al Rosenfield) Cheap Wind, June 7, 2016

[3] Energy Information Administration, Annual Energy Outlook, 2015

[4] Lazard’s Levelized Cost of Energy Analysis – Version 9.0, November 2015

[5] American Tradition Institute, The Cost and Economic Impact of Ohio’s Alternative Energy Portfolio Standard, April 2011

[6] Randy T Simmons, et al. Renewable Portfolio Standards: Ohio, April 2015,

[7] Alanpeg (Al Rosenfield) Recent Data Question Traditional LCOE Estimates, January 4 2015

[8] Galen Barbose, U.S. Renewables Portfolio Standards 2016 Annual Status Report, Report LBL-1005057, April 2016

 

Visual AppendixUntitled

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Cheap Wind

CheapWind

Wind energy was expensive several years ago. But its cost has fallen so sharply that its cost is now competitive with natural gas, even without subsidy [LCOE]. The graph above shows that the price being paid for electricity from wind is now below that for fossil fuels in our part of the country, the difference in price being about equal to the subsidy. It appears that wind is cheap with subsidy and competitive without subsidy.

Sources

[Fossil Fuels] PUCO, Apples to Apples Chart Archive, accessed 30 May 2016.

[LCOE] Energy Information Administration, Annual Energy Outlook, 2015; Lazard’s Levelized Cost of Energy Analysis – Version 9.0, November 2015

[Wind (Great Lakes Region)] Ryan H. Wiser, and Mark Bolinger, 2014 Wind Technologies Market Report, LBNL-188167, august 2015

[Wind (MI)] Sally A. Talberg, et al., Report On The Implementation Of The P.A. 295 Renewable Energy Standard And The Cost-Effectiveness Of The Energy Standards, Michigan Public Service Commission, February 12, 2016

[Wind (OH)] Sandy Buchanan, An Ohio Wind Farm Proves the Case for a Wise Renewable-energy Policy, IEEFA, April 30 2015