It's a great title but I won't take credit for it. Instead, it sits atop a marvelous article by Ross McCracken, an energy economist, in this month's issue of Insight, the energy journal published by Platts.
Like anybody who understands electricity, McCracken is both slightly provoked and slightly alarmed by the headlong rush into wind power in Europe and America. "Wind power has its critics and they feel that their reservation have been overridden by policy makers whose imagination have been captured by a green agenda that downplays wind's limitations," says McCracken judiciously.
The major limitation, of course, is wind's intermittency -- its lack of "dispatchability." Quite simply, you can never count on it. You can't even predict it from hour to hour with 100 percent accuracy and the windiest sites can go calm for days. On a national electrical grid, where supply and demand must be kept within 5 percent or each other in order to maintain voltage balances, this becomes very disruptive.
Despite these misgivings, political momentum is pushing ahead with wind at full tilt. Windmill manufacturers added 8,000 new megawatts (MW) to America's capacity in 2008, doubling the previous year's output and lifting total capacity to 21,000 MW -- the equivalent of 21 conventional coal or nuclear plants. In Europe, windmills were last year's biggest bloc of new generating capacity, 42 percent. Worldwide, wind's overall capacity increased 30 percent in 2008.
All this is being driven entirely by government mandates and subsidies. In America, wind gets a 1.8-cents-per-kilowatt-hour federal tax credit -- which would cover almost the entire fuel-and-operating costs of both coal and nuclear. The European Union now has a mandate to get 20 percent of its energy from "renewable" sources by 2020. In American, more than half the 50 states have adopted similar laws and a national "renewable portfolio standard" is in the Waxman-Markey energy bill now before Congress. Waiting in the wings is a European-style "feed-in tariff," which simply orders the utilities to buy so-called renewable electricity at above-market prices.
Many commentators have warned what this is going to do to the reliability of the electrical grid. What's different about McCracken's analysis is that he shows where this is all going to lead economically:
The conundrum that wind poses is not just technical [i.e., its intermittency.] It lies in the fact that wind does not directly displace fossil fuel generating capacity, but will make this capacity less profitable to maintain.
The utilities' generating capacity, as McCracken points out, generally falls into two categories -- base load and peaking. Base load runs day-and-night, week after week, to meet the underlying demand. It is almost universally provided by coal plants, which run for weeks at a time before shutting down for maintenance, and nuclear reactors, which can go almost two years between refueling. Peak loads, on the other hand, are generally met with natural gas turbines, which do not boil water and can be started and stopped almost instantaneously.
Unfortunately, as McCracken notes, wind falls into neithercategory. "As wind provides neither baseload nor peaking plant it has no impact on reserve capacity," he writes.
In so doing, it increases redundancy in peaking plant and reduces the profits of baseload generation; potentially good for consumers but bad for investment in non-intermittent sources of power, and presenting the risk of a decline in reserve capacity.…[P]eaking plants would be used much less and baseload plant would see sustained periods of potential below cost prices -- a particular nightmare for the nuclear industry.
In other words, thanks to government mandates and subsidies, wind will be there to throw power onto the market any time the wind blows. This will not replace base load plants but will only drive down prices, cutting into their revenues. Nonetheless, base-load nuclear plants will have to remain in operation, both because they will be needed as back-ups in case the wind doesn't blow or -- in the case of nuclear -- because it doesn't make sense to keep stopping and starting a plant that runs best for two years at a time.
And so coal and nuclear will become less profitable. Existing plants will be caught in a trap but new construction will be discouraged entirely. Already the British Nuclear Group is complaining that it can't build any new reactors if they have to compete against subsidized wind farms. Environmentalists are turning handsprings, claiming joyfully that wind is finally replacing nuclear. But what it actually happening is that no one is going to build the plants needed to back up wind's unreliability.
The one type of generating capacity likely to expand will be natural gas turbines, by far the most expensive way of generating electricity. Gas turbines are jet engines bolted to the ground. They do not boil water but use the gas exhausts to drive the turbines. They are cheap to build but insanely expensive to operate, since the fuel makes up 90 percent of their costs. (Coal is 50 percent and nuclear only 10 percent.) The major manufacturers -- GE, Siemens, and Toshiba -- are already marketing gas turbines as the "natural companion to wind." Rather than heading into an "era of renewable energy," we are headed into an era of natural gas. California, which has been at this for almost 30 years, gets 40 percent of its electricity from natural gas, twice the national average.
Our growing investment in wind, therefore, promises two things -- more expensive electricity and declining reserve capacity, especially if electrical demand continues to grow. By coincidence, that's exactly the path trodden by California on the way to the Great Electrical Shortage of 2000. Or maybe it isn't a coincidence at all. Maybe we're just traveling down the same road, this time on a national scale.
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