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A Look at Some of the Obstacles Facing Wind Energy in the U.S.

By Gail Tverberg | Fri, 06 January 2012 00:05 | 0

In the United States, we have been working on scaling up wind energy but not getting very far. In 2010, wind energy supplied only 2.3% of electricity purchased.

Such slow progress seems strange for a product that seems to have such great promise. It can reduce CO2 emissions. It doesn’t require fuel. It is at least partly US made. The popular view is that it could eventually replace gasoline, but that view is very optimistic because electricity is very different from gasoline, and because of the scalability issue.

US Energy Consumption
Figure 1. Wind energy (dark green) is barely visible in a graph of US energy consumption by source. Based on EIA data.

In this post, I discuss a few of the obstacles facing wind energy in the United States, and their implications for the expansion of wind energy.

Obstacle 1: Wind energy is dependent on large subsidies.

According to the EIA’s report, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, wind energy received subsidies of $4.986 billion from the federal government for Fiscal Year 2010. This amount is equal to approximately half the cost of new wind power installed during that period. State and local subsidies would be in addition. (The US Wind Energy Association shows that 6034 megawatts of new capacity was installed between October 1, 2009 and September 30, 2010, so the subsidy per megawatt was $826,318. This compares to an average cost per megawatt of about $1.4 million, excluding construction and connection costs.)

The wind energy’s largest subsidy, the Production Tax Credit, is set to expire on December 31, 2012, unless Congress acts to extend it, so there is now a big rush to get orders filled before that date. A study by Navigant Consulting forecasts a large drop in wind investment, if the Production Tax Credit is not extended (Figure 2).

 Annual Investment in Wind Energy
Figure 2. Annual Investment in Wind Energy in $ Billion, according to Navigant Consulting.

Needless to say, the US Federal Government is not flush with money for subsidies, so there is the possibility that subsidies will not be renewed or will be cut back.

Obstacle 2: Wind energy is of a lower quality than electricity produced by fossil fuels and by nuclear energy.

Wind blows when it chooses, which is often not when it is needed most. In theory, this problem could be resolved with robust long-distance transmission of electricity and with adequate electrical storage, but in the US, these are not available. This means that even in locations where wind energy makes up a relatively large share of the fuel mix, other types of generations must be available to supply almost the full level of demand, if the wind is not blowing.

As a result, the role of wind energy is fairly limited.  What wind energy does is permit electricity generating plants, particularly those fueled by natural gas, to use less fuel. Consequently, the price of wind energy tends to compete with the price of fuel, rather than with the wholesale price of electricity.

Comparison of Electricity Prices 
Figure 3. Comparison of prices of wind generated electricity with electricity generated by other means, showing that wind energy prices tend to be considerably lower, because of its lower quality.

From US Department of Energy report, "Annual Report on U. S. Wind Power Installation, Cost, and Performance Trends: 2007."

Consequently, without mandated feed-in tariffs, the sales price of wind-generated electricity tends to fall below the wholesale price of other types of electricity (Figure 3). This lower price for wind generated electricity helps explain some of the need for subsidies.

A related issue is the confusion caused by a comparison of the “levelized cost of wind” with the levelized cost of other types of generation, such as is shown in Figure 4 by the US Energy Information Administration.

Cost of New Electricity Generation Resources 
Figure 4. EIA's exhibit showing Estimated Levelized Cost of New Electricity Generation Resources, from Annual Energy Outlook 2011.

Because of the lower quality of wind, Figure 4 represents an “apples to oranges” comparison, if one makes the standard comparison of amounts in the last column. Instead, since wind energy only replaces fuel, what needs to be compared is

• “Total System Levelized Cost” for wind relative to
• “Variable O&M (including fuel)” for other sources of production

In Figure 4,  the Total System Levelized Cost of Wind is 97.0, and of Wind-Offshore is 243.2. These might be compared with the Variable O&M (including fuel) of coal (Advanced coal is 25.7) or of natural gas (Conventional Combined Cycle is 45.6), for example. On this basis, wind energy comes out badly, and is one reason it requires such high subsides.

Another related issue is that differences in fuel quality can lead to misleading EROEI indications. At least some petroleum is used in manufacturing, transporting, installing, and maintaining wind turbines, but the energy that is provided as an output is mostly replacing natural gas, and perhaps some coal. Coal and natural gas are much cheaper (and more abundant) than oil, so even a small input/output substitution in this direction can quickly hurt the economics of the process.

Obstacle 3: Natural gas is now very cheap in the US, and there is a huge amount of natural gas generating capacity already built.

Since wind energy tends to compete with the cost of fossil fuels used to produce electricity (mostly natural gas and coal in the US), a low price of natural gas is a problem because even greater subsidies will be required for wind energy to be competitive.

Furthermore, natural gas generating capacity is no issue. The current natural gas average gas capacity factor is 28%, suggesting that US natural gas generation could be tripled, without requiring an increase in generating capacity. This excess generating capacity was built partly because natural gas is good for load balancing (and electricity prices tend to be high to meet temporary demand spikes), and partly to meet an expected rise in electricity demand that never materialized because of recession in recent years.

Obstacle 4: In the US, we do not have an electrical grid that can provide very much long distance transport of electricity, and there are several reasons why changing this situation is very difficult.

Growth in wind energy requires very good long distance transmission capability, partly because wind resources are often located a long way from prospective users, and partly because the variable nature of wind can be “evened out” if wind energy is shared over a large area. Unfortunately, the US electrical system has grown up under a system where each locality has been expected to generate its own electricity. Under such a system, electrical transmission from city to city was originally designed to handle only occasional emergencies, and thus is very limited.

The way the US electric transmission system was set up produces many anomalies. Electrical rates vary greatly from state to state. We needlessly burn large amounts of oil transporting coal to where it will be burned for electricity, rather than burning it near where the coal is mined, and then transporting the electric power over transmission lines.  Nuclear-fueled power plants are sometimes located near large cities.

The problem is very difficult to fix for many reasons. Any improvement in electric transmission would tend to even out electricity rates, but this would be to the detriment of customers who currently have low electric rates. To the extent that new transmission costs more, and these higher costs are charged back in electric rates, such a change could result in higher electricity costs for more than half of the population–something most politicians would find unacceptable.

If better transmission were readily available and free, no one would want to build a power plant in their back yard, making it even harder to site new power plants than it is now.

Another issue is that a good mechanism for paying for the installation and maintenance of new long distance transmission lines has not been established. Under current procedures, a determination must be made as to which electric generating companies will benefit from new transmission lines, and the costs allocated among the beneficiaries. The government in the past has not funded long distance electrical transmission. No one really “owns” the long distance lines.

The only partial fix I can see would be to create a separate organization to build and maintain a few new long-distance transmission lines. Wind energy and other users seeking to use these lines would be charged for the use of these lines, similar to a toll road. The likely result would be more coal fired-power plants being built near these lines, because wind usage by itself could not support these lines. Even this arrangement would likely require a change to current laws. The net effect might be more CO2, rather than less.

The cost of long distance electric transmission is likely to be fairly high–at least several cents per kWh, for wind energy transported over long distances. Over time, the price can be expected to rise as the price of oil rises. Some maintenance may become very difficult, such as that currently done by helicopters in remote locations.

Obstacle 5: A high proportion of funding for wind energy is up front.

Oil, coal, and gas all started out as fairly high EROEI investments, and much of the investment took place as the fuel was extracted. In such a situation, the investments threw off a high level of profit which could be used to fund further investment.

Fossil fuels are gradually shifting away from this model, with higher up front investment, and lower profit available to fund further investment. Wind turbines represent the extreme end of this continuum with most of the investment up front, and the return trailing many years behind.

As a result of this shift in timing, it is becoming more difficult to fund projects with huge up-front investment. In the “good old days,” we had the low price of fossil fuels which made other investments easier to afford. We also could count on a being always able to add more debt, but we are reaching limits on sustainable debt. I wrote two posts on The Link Between Peak Oil and Peak Debt (Part 1 and Part 2). More recently, I talked about how Net Savings is dropping dramatically in the US, so that non-debt sources of funding are also disappearing.

Us Investment and Savings Ratios 
Figure 5. US Savings and Investment Ratios, based on US Bureau of Economic Analysis Data.

The net of all of this is that if we are reaching limits with respect to finite resources, it is going to be increasingly difficult to fund projects that require large up-front investment and provide a return later. We will likely have to give up some investments we really need (such as replacing worn out roads, pipelines, and school buildings) in order to ramp up investments in projects that require large front-end funding, like wind turbines.

Obstacle 6: Adding wind energy to the electric grid adds complexity which may be difficult to manage with declining resources.

The job of balancing supply with electrical demand and keeping all sources of electricity “in synch” becomes more difficult, as more variable sources of supply come on line. While it is theoretically possible to find technical solutions to these issues, it is not clear that we will in practice.

Furthermore, changes related to the Smart Grid will also add to the stress to the system, since the Smart Grid is designed to operate the grid at closer to its theoretical capacity. These enhancements add efficiency to the system, but reduce resilience.

The grid with the new enhancements will work until at some point it doesn’t work–for example, an unplanned event causes a major failure within the system, or a needed system upgrade is too expensive to afford, or a replacement part from overseas is unavailable. Hopefully, failures of this type will be temporary and local, but if resources are limited, the time may come when the high cost of maintaining the system becomes unsustainable.

Further Thoughts about Wind Energy

I have not been able to touch on more than a few issues in this post.

One of the big issues with wind is that its benefits have been oversold. If we are already having trouble with the electrical grid not being able to accept more wind energy in popular wind-generating areas when wind energy constitutes only 2.3% of total electricity supply, then wind energy is going to be difficult to scale up quickly. The issues I point out in this article suggest that the cost problem is still large, and the fixes needed to add long-distance transmission are likely to make the cost problem even worse.

Many people assume wind can do everything–replace gasoline, run our cars and trucks, and allow us to continue business as usual, without worries about CO2 or about oil depleting. We are a long way from making a dream like this happen. We would need advances in electric vehicles and trillions of dollars of investment to even partially make a dream like this happen.

Some people hope that wind energy can somehow allow business as usual to continue almost indefinitely, after oil and gas deplete, and after we decide to stop using coal. I can’t see this happening. We need fossil fuels to make wind energy, and we need fossil fuels to transport wind turbines to the locations where they are to be installed. We also need fossil fuels to repair wind turbines and to maintain transmission lines.

I expect that at some point grid problems will become overwhelming, so at least the long-distance portion of the grid will be lost. It is possible that adding more wind energy to the grid will make that date come sooner, rather than later, because of the complexity issues I mentioned. Unless the limiting factor on the life of the electric grid is the amount of coal and natural gas available, and wind energy somehow delays running out of these, I have a hard time seeing how wind energy will make the electric grid last longer.

There are so many obstacles for wind to overcome in the US that I am not sure that we should even try to push for higher wind penetration levels. The only exception might be in areas where wind energy is cheap to produce and the grid can readily accept the electricity.

Since the world is finite, there is a good chance that at some point we are going to have to get along with less electricity as well as less oil. Instead of focusing on delaying the inevitable, perhaps we should start thinking about preparing people for simpler lives that use less energy of all types. Such an approach might solve multiple problems at once–too much CO2, too little oil, and too little capital to tackle all the problems that need to be tackled at once.

By. Gail Tverberg

Gail Tverberg is a writer and speaker about energy issues. She is especially known for her work with financial issues associated with peak oil. Prior to getting involved with energy issues, Ms. Tverberg worked as an actuarial consultant. This work involved performing insurance-related analyses and forecasts. Her personal blog is ourfiniteworld.com. She is also an editor of The Oil Drum.

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