Expensive Electricity’s Hidden Costs Include More Than Just Direct Economic Impact
By Marita Noon
The Federal Energy Regulatory Commission (FERC) has just released their Energy Infrastructure Update report—showing how much new electric generating capacity was installed for 2012. According to the report, renewable energy sources (biomass, geothermal, solar, hydro, and wind) accounted for 49.10% of all new domestic electrical generating capacity installed in 2012 for a total of 12,956 MW. More than a quarter of that new capacity (25.29%, or 3,276 MW) reportedly came on-line in the month of December 2012. Wind led the way in 2012 with 164 new “units” totaling 10,689 MW.
Advocates of renewable energy are likely cheering these new numbers—even though, according to the FERC report, renewables still only account for 15.40% of total installed U.S. operating generating capacity, with wind coming in at 4.97%.
Without directly saying so, the FERC report highlights renewable energy’s dependence on government subsidies. Why in a twelve-month year, did more than a quarter of the new capacity come online in just one month—the month of December?
Despite intensive lobbying efforts on behalf of the American Wind Energy Association, the Production Tax Credit (PTC) for wind energy—that was set to expire at the end of 2012—wasn’t extended until the Fiscal Cliff Deal became law on January 2, 2013. Those seeking to benefit from the government largesse had the financial motivation to get as many wind projects as possible up and running. As long as the project was completed in 2012, it would receive the PTC for the next ten years. The Fiscal Cliff Deal gave wind energy developers one more year to take advantage of the PTC—but the extension wasn’t a sure thing until after it had already expired. (Note: the new PTC deal changed the requirements from being completed by the end of the one year extension to qualify, to merely starting construction by December 31, 2013.)
Wind energy advocates claim that the PTC is needed to help make wind energy cost competitive with traditional energy sources, such as coal and natural gas. However a new report from the American Tradition Institute, “Hidden Costs of Wind Electricity,” reveals that the true costs for wind-generated electricity are actually one-and-a-half to two times more than what the Energy Information Agency (EIA) forecasts.
According to the EIA, the levelized cost of electricity generated from an advanced natural gas-fueled, combined-cycle power plant is 6.3 cents per kilowatt hour and 11.1 cents from advanced coal or nuclear. The EIA models forecast wind-generated electricity at 9.6 cents per kilowatt hour—which sounds very promising—but fails to take into account the “hidden costs” such as:
- Because, with rare exceptions, wind can only operate as an appendage to traditional generation, not as a replacement, the cost of primary fossil-fueled plants must be included. The traditional plants are kept available to balance wind’s large variations in output. Adding wind to the system reduces the amount of generation for which the plants are paid and therefore increases their operating costs.
- The reduced fuel efficiency wind imposes on those plants.
- Due to the remote siting of most wind facilities, real costs include long-distance transmission and the losses that come with it.
According to the report, these hidden costs are not included in the EIA figures because the regulatory authorities have not required wind operators to pay for them, rather the costs have, once again, been borne by consumers. The authors state: “In an honest, transparent, and accountable political system, that should not be an excuse for policy makers to ignore their impact on consumers, jobs, and the economy.”
With the hidden costs factored in, the report concludes that wind’s true cost is about 15.1 cents per kilowatt hour for natural-gas fired back-up and 19.2 cents for coal-fired back up—or one-and-a-half to two times the cost of new-construction coal- or gas-fueled electricity. (The higher costs do not include the 12 billion in taxpayer dollars going to the wind industry due to the PTC extension.)
The report’s authors believe these costs will go up, not down. First, wind energy is a mature industry—worldwide market is more than $50 billion per year. Therefore, costs are unlikely to be reduced by either technological advances or further economies of scale. Additionally, most current wind facilities have been built in locations that could piggyback on existing transmission infrastructure—as these easier opportunities are used up, new installations will have higher transmissions costs.
But the dollar figures are only part of the hidden costs. In addition to the cronyism and corruption, there are negative unintended consequences.
Renewable energy proponents tout “clean” and “green” as a key selling point. Many utility companies offer customers an option to feel good about saving the planet by using the more expensive renewable energy.
But recent news from Germany—which is reputed to have more renewable energy than most of the developed world, and Greece—where the economy is known to be one of the worst in the developed world, show that, in practice, expensive energy is neither clean nor green.
Both countries are reporting that trees are disappearing from forests and parks as “impoverished residents, too broke to pay for electricity or fuel, turn to fireplaces and wood stoves for heat.”
In Germany, Der Spiegel blames high energy costs for a rise in tree thefts and wood-burning stove purchases: “Germans bought 400,000 such stoves in 2011, the German magazine FOCUS reported this week. It marks the continuation of a trend: The number of Germans buying heating devices that burn wood and coal has grown steadily since 2005.”
Similarly, the Wall Street Journal reports that in Greece: “As winter temperatures bite, that trend is dealing a serious blow to the environment, as hillsides are denuded of timber and smog from fires clouds the air in Athens and other cities, posing risks to public health.” In addition to the environmental devastation, the illegal logging has caused and the visible pollution from burning wood, the high cost of electricity has closed schools in Greece because they can’t afford heat and lives have been lost as fires have broken out of wood stoves, burned down houses, and killed residents.
As most of America is in the midst of a deep freeze, and the Obama Administration is moving forward with its renewable energy programs, the hidden costs of expensive electricity to human life and the environment need to be counted as well as the economic impacts. As the stories from Europe clearly point out, expensive electricity hits the poor the hardest.
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