In Australia and the US, the wind industry and its parasites are making wild claims about being able to deliver power at prices equal to, or less than, the cost of conventional generation sources (see our post here). Those claims are about to be put to the test. In both Countries, legislators are ready to call their bluff: if wind power is competitive, then it doesn’t need mandated targets anymore – this stuff will sell itself.

Here’s the New York Times on what can happen when lawmakers take the wind industry at its word.

A Pushback on Green Power
The New York Times
Diane Cardwell
28 May 2014

As renewable energy production has surged in recent years, opponents of government policies that have helped spur its growth have pushed to roll back those incentives and mandates in state after state.

On Wednesday, they claimed their first victory, when Ohio lawmakers voted to freeze the phasing-in of power that utilities must buy from renewable energy sources.

The bill, which passed the Ohio House of Representatives, 54 to 38, was expected to be signed into law by Gov. John R. Kasich, who helped negotiate its final draft.

It stands in marked contrast to the broad consensus behind the original law in 2008, when it was approved with virtually no opposition, and comes after considerable disagreement among lawmakers, energy executives and public interest groups.

Opponents of the mandates argued, in part, that wind and solar power, whose costs have plunged in recent years, should compete on their own with traditional fossil fuels. But the debate has taken on a broader, more political tone as well, analysts say, with disagreements over the role of government, the economic needs of the state and the debate over climate change.

“It used to be that renewables was this Kumbaya, come-together moment for Republicans and Democrats,” said Michael E. Webber, deputy director of the Energy Institute at the University of Texas at Austin. “The intellectual rhetoric around why you would want renewables has been lost and replaced by partisanship.”

Since 2013, more than a dozen states have taken up proposals to weaken or eliminate green energy mandates and incentives, often helped by conservative and libertarian policy or advocacy groups like the Heartland Institute, Americans for Prosperity and the American Legislative Exchange Council.

In Kansas, for example, lawmakers recently defeated a bill that would have phased out the state’s renewable energy mandates, but its backers have vowed to propose it again.

Jay Apt, director of the Electricity Industry Center at Carnegie Mellon University, said the Ohio battle was “another skirmish in the question of whether we are committed to cleaning up pollution, and people are divided.” He added, “Renewable portfolio standards and other mechanisms of pollution control are not cost-free.”

The Ohio bill freezes mandates that require utilities to gradually phase in the purchase of 25 percent of their power from alternative sources, including wind, solar and emerging technologies like clean coal production, by 2025. While the freeze is in effect for two years, a commission would study the issue.

At the federal level, alternative energy industries like solar and wind have pushed hard in recent years to preserve important tax breaks that they say have helped spur new development and sharply increased the supply of clean energy flowing into the grid.

But the demand for that energy has been largely propelled at the state level by mandates, known as renewable portfolio standards, that generally set goals for utilities to increase the percentage of green energy they include in the power they buy for their customers.

Roughly 30 states have the standards, which can range from modest voluntary goals like Indiana’s target of 10 percent by 2025 to more aggressive requirements like Hawaii’s, which aim for 40 percent by 2030, according to the Department of Energy.

“Energy markets are highly policy-driven,” said Todd Foley, senior vice president of policy and government relations at the American Council on Renewable Energy. “When states and even the federal government continually revisit these policies, it sends a signal of uncertainty. It chills market and investment momentum.”

In Ohio, where opponents of the mandate argued that it raised the price of electricity and supporters worried about the loss of economic development and jobs, Mr. Kasich worked to broker the compromise bill, said a spokesman for the governor.

“We rejected the efforts by those who’d like to kill renewable energy altogether, and instead we’re moving forward in a balanced way that supports renewable energy while also preserving the economic recovery that’s created more than 250,000 jobs,” the spokesman, Rob Nichols, said. “It’s not what everyone wanted, which probably means we came down at the right spot.”

Eli Miller, Americans for Prosperity’s Ohio state director, backed by the billionaire industrialists David H. and Charles G. Koch, called the proposed law “a prudent step” to re-examine standards that could be a “potential impediment to job creation and job growth here in the Buckeye State.”

But Gabe Elsner, executive director of the Energy and Policy Institute, a pro-renewables group that sees efforts to weaken incentives and mandates as part of a campaign by utility and fossil fuel interests, said the temporary halt could do away with the law entirely.

“The fossil fuel and utility industry has been caught off guard by the rise of cheap, clean energy, and over the past 18 months they’ve responded in a really big way across the country,” he said. “We’re seeing the results of that campaign now in Ohio.”

Renewable energy still represents a small fraction of the overall energy mix, reaching about 6 percent of net generation in 2013, excluding hydropower, according to the United States Energy Information Administration. But it is on the rise, representing 30 percent of power plant capacity added that year.

For renewable developers, the outlook is uncertain. Michael Speerschneider, chief permitting and public policy officer for EverPower, which recently won approval to develop a 176-turbine project in Ohio, said the ruling would make it more difficult to find a buyer for the power, dimming prospects for doing business in the state.

“We came to Ohio based on the policies that were in place,” he said. “Changing that now, freezing it, just sends a message that says, ‘Now, we don’t want you here anymore’.”
The New York Times

Talk about contradiction. In one breath, the wind industry spin doctors talk about the (purported) plunge in the cost of wind power – pointing to “the rise of cheap, clean energy” as a mortal threat to the very existence of fossil fuel generators (the reason for the push to kill the mandated targets, apparently) – and in the very next breath they start pleading for policy mercy – claiming that without the “right” policies in place it would be “difficult to find a buyer” for wind power.

Strap yourself in kids for a quick economics lesson.

When there are 2 goods which are identical in all relevant respects they’re called “perfect substitutes”. Let’s call one good A and the other B.

Faced with a choice between 2 perfect substitutes, the rational optimizing agent (assumed to make choices that lead to optimal consumption outcomes) will always choose the cheaper of the 2 goods. If good A is cheaper than good B, there is no rational reason to choose good B – they are both equally as good as one another. It is, however, rational to choose the cheaper good A, as this frees income (otherwise spent on good B) to purchase other goods, or more of good A, say – leading to an optimal consumption outcome.

The first part of the wind industry spinner’s case is that wind power is now so cheap that it’s being chosen by consumers ahead of more expensive power from conventional sources – thereby threatening the viability of fossil fuel generators. Hence the fossil fuel driven “conspiracy” to overturn legislated mandates favouring wind power.

In both the US and here, the wind industry has been making the explicit pitch that wind power is now so cheap that it’s driving down household power prices (see our posts here and here).

At first blush, a MW of electricity from a wind turbine and from a gas turbine should – as far as the customer is concerned – be “perfect substitutes”. Let’s assume that to be the case – we’ll call wind power good A and conventional power good B.

If (as the wind industry spinners argue) good A is cheaper than good B, it’s an economics “no-brainer”: the rational optimizing agent chooses good A. On the wind industry’s pitch, the consumer chooses wind power in preference to conventional power, as the consumer will be better off in doing so.

So far, so theoretical.

But wait; the same wind industry spinners tell us that without mandated renewables targets it would be “difficult to find a buyer” for wind power. How can that be?

The little game of A versus B with perfect substitutes is played in the abstract by students of Economics 101 all over the world – and by supermarket shoppers everywhere, as they line up to choose between identical tins of baked beans. And the result is the same: faced with “perfect substitutes” the rational optimizing agent (or hungry bean consumer) chooses the cheapest option.

If wind power really is cheaper than conventional power, why is the wind industry so desperately keen to retain mandatory renewables targets?

Could it be that a MW of wind power ISN’T a perfect substitute for a MW of conventional power?

What on Earth could be the difference?

When it comes to their demand for electricity, the power consumer has a couple of basic needs: when they hit the light switch they assume illumination will shortly follow and that when the kettle is kicked into gear it’ll be boiling soon thereafter. And the power consumer assumes that these – and similar actions in a household or business – will be open to them at any time of the night or day, every day of the year.

For conventional generators, delivering power on the basic terms outlined above is a doddle: delivering base-load power around the clock, rain, hail or shine is just good business. It’s what the customer wants and is prepared to pay for, so it makes good sense to deliver on-demand.

But for wind power generators it’s never about how much the customer wants or when they want it, it’s always and everywhere about the vagaries of the wind. When the wind speed increases to 25 m/s, turbines are automatically shut-off to protect the blades and bearings; and below 6-7 m/s turbines are incapable of producing any power at all.

Even with the most geographically widespread grid-connected set of wind farms in the world (the 2,660 MW of wind power capacity connected to Australia’s Eastern grid across SA, Victoria, Tasmania and NSW) there are dozens of occasions each year when total wind power output struggles to top 2% of installed capacity – and hundreds when it fails to muster even 5% (see our posts here and here).

Now, if the power consumer was given advance warning of when these total output failures were going to occur, they might simply reconsider their selfish demands of having illumination after dark or that hot cuppa in the morning. That way, they might still consider wind power a “perfect substitute” for conventional power; and plump for the (purportedly cheaper) former over the latter every time?

But, so far, power consumers remain stubbornly selfish; wedded to the idea that when they hit the switch, their power needs will be satisfied that very instant (the cheek, hey?).

And that’s where the “perfect substitute” comparison falls in a heap.

Power delivered at crazy, random intervals (which in practical terms means no power at all, hundreds of times each year) is NO substitute for power delivered on-demand; anytime of the day or night; every single day of the year – and in volumes sufficient to satisfy all consumers connected to the same network, at the same time. Wind power cannot, therefore, be considered a “perfect substitute” for power which is available on-demand.

In the end, we aren’t talking about identical goods at all. One was deliberately designed to compliment the demands of modern civil societies (allowing mum to tend to a crying newborn at any hour of the night; allowing a business to operate around its customers’ demands – that frozen food, be sold frozen, say; and allowing manufacturers to fire-up their plant whenever the shift clocks-on); whereas, the other, is just childish nonsense, with no “design” at all.

The legislation setting up mandated renewables targets uses threats to retailers in the form of financial penalties (like the $65 per MWh fine under the RET) and/or financial inducements (like Renewable Energy Certificates, currently worth $25 per MW) (see our post here).

In the absence of those financial penalties and/or inducements the truth is that there would be no market for wind power at all. Retailers wouldn’t buy it from wind power generators as they know full well they could never sell it on to their retail customers as an exclusive product.

Sure, under our mandated target, retailers may end up “buying” wind power on those brief occasions when it’s available, but only because conventional generators provide back up with “spinning reserve” and fast-start-up peaking power from Open Cycle Gas Turbines which is sufficient to maintain a constant supply when wind power output plummets every day and for days on end.

In the absence of that guaranteed supply from conventional generators, retailers wouldn’t touch wind power with a barge pole. Moreover, it’s power consumers – not wind power generators – that stump up for the additional and unnecessary cost of maintaining and running that conventional generation back up (see our post here).

Remember, the wind industry’s key argument at the minute is that it’s delivering a “stand-alone” product at a price which is lower than its conventional generation “competitors”. However, without legislated coercion placed on retailers to take wind power ahead of all other sources, wind power generators would be out of business in a heartbeat.

And it’s these facts that explain the wind industry’s desperation to maintain mandated renewables targets at all costs.

In Australia, the wind industry and its parasites are playing a very dangerous game at the minute; taking every opportunity to spruik publicly about wind power lowering power prices because it is now said to be price-competitive with conventional generators.

STT hears that the members of the RET Review Panel (and the staffers in the PM’s office involved in the review) have taken a very keen interest in that argument. Apparently, they’re prepared to take the pitch at face value and are all set to give the obvious retort: “if wind power is competitive with conventional generators, then there’s no need for a mandatory RET at all.”

What’s that they say about the need to “be careful what you wish for”?