If Wind Energy Subsidies Continue, Will the Cost of Wind Energy Go Down?

Wind Energy / Economics

Eric Williams and Eric Hittinger opine that there are high hopes for renewable energy (by the Liberals) to help society by providing a more stable climate, better energy security and less pollution (but doesn't nuclear power already provide such benefits?). Government actions reflect these hopes through policies to promote renewable energy proliferated by the Obama administration, especially by all the subsidies to stimulate installation of "new technology", literally at the expense of nuclear power, and by EIA promoting one energy over another for 8 years). In the U.S. since 1992 there’s been a federal subsidy to promote wind energy, and many states require electricity utilities to use some renewable energy, (prompted by Liberals wishing for windmills and sun clubs as in the old days).

But when is the right time to stop government support for an energy technology? 

This is a timely question: Rick Perry’s Department of Energy is currently working on a grid reliability report that many expect to argue that wind and solar cause reliability problems because they don’t supply power continually (This is true and a major setback ...until batteries become reliable and cost effective).. A conclusion like this can be used to justify removal of government subsidies or regulations favoring other sources of energy (True).

Subsidies need not last forever – there can come a time when its objective has been achieved or experience suggests the subsidy is not working as intended.

Is it time to end subsidies for wind? A big part of the answer to this question lies in whether subsidies are actually making wind cheaper.

The justification for subsidizing a given technology is that it delivers public benefits that outweigh the subsidy cost. If a technology shows promise to become cheap enough, the subsidy can be viewed as a temporary stimulus to bring it a point where it can stand on its own. For example, in the early days of the semiconductor industry, integrated circuits were too expensive for consumer markets. Government demand for military applications provided a critical bridge to bring down costs and activate broader markets. On the other hand, subsidizing an emerging technology that has trouble bringing down costs may be inefficient. For decades, the U.S. government has subsidized or mandated production of corn ethanol. Yet ethanol is still not market-competitive, at least not with recent crude oil prices.

The price for wind power has gone down over the years, but how cheap is it getting? There is a surprisingly diverse set of answers to this question. There are over 100 existing studies of wind cost trends, with results ranging from wind power becoming more expensive over time to becoming cheaper so quickly that it will soon be cheaper than fossil fuels. Curiously enough, while researchers have recently started to note disparities between studies, no one has yet grappled with explaining and reducing such variability. This is, unfortunately, a common situation in many research domains: Various groups get conflicting results from similar analyses, but no one works on understanding why these differences arise. (This is because the actual operation and maintenance costs are just now be racked up to reveal the real cost of renewables (i.e., wind and solar).

In a recent paper, we sought to better understand cost reductions in wind power by finding patterns in historical trends. Wind costs follow what economists call a learning curve: For every doubling of wind production, the cost goes down by a fixed percentage. For example, if the price of electricity from wind is 10 cents per kilowatt-hour with a given number of wind farms, a 10 percent “learning rate” means that wind electricity would cost 10 percent less, or 9 cents per kilowatt-hour, if one doubles the number of wind farms.

One must be cautious, however, in feeling too sure of forecasts. Technologies and fuel prices can go in unpredictable directions. Also, wind is an intermittent resource, meaning it can’t provide round-the-clock power as fossil fuels can. There is an additional cost to this intermittency, which is very difficult to predict. Also, being cheap doesn’t mean we will soon be able to switch to 100 percent wind (meaning it can not be counted to supply the grid-power  and other uncertainties). To meet electricity demand continually, we will need a combination of energy storage, lowering power consumption at certain times (known as demand response) and traditional “firm” power production. (Notice that nuclear power is not included in the above....Liberal bias?)

But read on ...to get the full benefit of their points