The “New Energy Economy”: An Exercise in Magical Thinking
The Hidden Costs of a Green Grid
Green energy has proven to be more expensive for Americans. Learn more below.
Author: Mark P. Mills
Posted by: Jim Nathanson
Subsidies, tax preferences, and mandates can hide realworld costs, but when enough of them accumulate, the effect should be visible in overall system costs. And it is. In Europe, the data show that the higher the share of wind/solar, the higher the average cost of grid electricity (Figure 3).
Germany and Britain, well down the “new energy” path, have seen average electricity rates rise 60%–110% over the past two decades.The same pattern—more wind/solar and higher electricity bills—is visible in Australia and Canada.38 Since the share of wind power, on a per-capita basis, in the U.S. is still at only a small fraction of that in most of Europe, the cost impacts on American ratepayers are less dramatic and less visible. Nonetheless, average U.S. residential electric costs have risen some 20% over the past 15 years. That should not have been the case. Average electric rates should have gone down, not up.
Here’s why: coal and natural gas together supplied about 70% of electricity over that 15-year period.The price of fuel accounts for about 60%–70% of the cost to produce electricity when using hydrocarbons.41 Thus, about half the average cost of America’s electricity depends on coal and gas prices. The price of both those fuels has gone down by over 50% over that 15-year period. Utility costs, specifically, to purchase gas and coal are down some 25% over the past decade alone. In other words, cost savings from the shale-gas revolution have significantly insulated consumers, so far, from even higher rate increases.
The increased use of wind/solar imposes a variety of hidden, physics-based costs that are rarely acknowledged in utility or government accounting. For example, when large quantities of power are rapidly, repeatedly, and unpredictably cycled up and down, the challenge and costs associated with “balancing” a grid (i.e., keeping it from failing) are greatly increased. OECD analysts estimate that at least some of those “invisible” costs imposed on the grid add 20%–50% to the cost of grid kilowatt-hours. Furthermore, flipping the role of the grid’s existing power plants from primary to backup for wind/solar leads to other real but unallocated costs that emerge from physical realities. Increased cycling of conventional power plants increases wear-and-tear and maintenance costs. It also reduces the utilization of those expensive assets, which means that capital costs are spread out over fewer kWh produced— thereby arithmetically increasing the cost of each of those kilowatt-hours.
Then, if the share of episodic power becomes significant, the potential rises for complete system blackouts. That has happened twice after the wind died down unexpectedly (with some customers out for days in some areas) in the state of South Australia, which derives over 40% of its electricity from wind.
After a total system outage in South Australia in 2018, Tesla, with much media fanfare, installed the world’s single largest lithium battery “farm” on that grid.For context, to keep South Australia lit for one half-day of no wind would require 80 such “world’s biggest” Tesla battery farms, and that’s on a grid that serves just 2.5 million people.
Engineers have other ways to achieve reliability; using oldfashioned giant diesel-engine generators as backup (engines essentially the same as those that propel cruise ships or that are used to back up data centers). Without fanfare, because of rising use of wind, U.S. utilities have been installing grid-scale engines at a furious pace. The grid now has over $4 billion in utility-scale, enginedriven generators (enough for about 100 cruise ships), with lots more to come.
Most burn natural gas, though a lot of them are oil-fired. Three times as many such big reciprocating engines have been added to America’s grid over the past two decades as over the half-century prior to that.
All these costs are real and are not allocated to wind or solar generators. But electricity consumers pay them. A way to understand what’s going on: managing grids with hidden costs imposed on nonfavored players would be like levying fees on car drivers for the highway wear-and-tear caused by heavy trucks while simultaneously subsidizing the cost of fueling those trucks.
The issue with wind and solar power comes down to a simple point: their usefulness is impractical on a national scale as a major or primary fuel source for generating electricity. As with any technology, pushing the boundaries of practical utilization is possible but usually not sensible or cost-effective.