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New Study Finds Wind and Solar Are Still More Expensive Than Existing, Even Brand New, Fuel-Based Generators

A new study published by the Institute for Energy Research (IER) concluded that building new wind and solar farms is up to 120 percent more expensive per megawatt hour of production than existing resources, like natural gas, coal, nuclear, and hydroelectric generators, shown in the chart below.

These findings suggest that Minnesota utility companies, lawmakers, and renewable energy advocacy groups have been falsely implying that by building new wind and solar facilities in the state, electricity costs would be reduced. Instead, due to the irresponsible renewable energy policies and mandates that have taken hold in Minnesota, what we have seen is a 26 percent increase in electricity rates since 2004, in inflation-adjusted dollars, by prematurely retiring inexpensive and still-useful coal generators to make-way for new and more expensive wind farms, solar fields, and natural gas facilities.

From IER’s chart above, “LCOE” represents the Levelized Cost of Energy for each electrical generator in dollars per megawatt-hour ($/MWh), and is a common metric for comparing the cost of electricity generated by different energy sources.

Although LCOE estimates often lack a full accounting of the costs associated with intermittent energy sources like wind and solar, IER actually includes many of these costs in this report, which are listed as “imposed costs.” By doing so, IER’s study is one of the most accurate analyses calculating the true cost of renewable energy sources.

And the conclusions IER comes up with are very telling.

As you can see, after accounting for the many additional costs that wind and solar facilities impose onto other energy sources – such as increased ramping expenses for combined cycle and combustion turbine gas facilities – constructing new wind and solar energy facilities is nearly 20 percent more expensive than building brand new fuel-based generators, let alone simply maintaining existing ones.

As IER points out in their study, wind and solar energy are so expensive because of their inability to produce significant amounts of electricity during peak-demand hours and the unpredictable, intermittent behavior of their electricity generation output, which not only requires backup generating sources to remain on standby but also causes backup generators to ramp up and down production more frequently – both of which increase expenses.

In fact, each regional electrical grid operator – Minnesota’s is known as the Midcontinent Independent Systems Operator (MISO) – determines a “capacity value” for every energy source based on real-time data during peak-demand hours.

Capacity values, as the National Renewable Energy Laboratory describes, are a generator’s “ability to reliably meet demand.” (As opposed to “capacity factors,” which measure how often, on average, generators produce electricity throughout a year).

In order to calculate these values, the Energy Information Administration (EIA) explains that while the “method for developing these peak capacity values varies by region,” each region similarly reduces “the amount wind contributes to the capacity needed to ensure reliability” because of “its unpredictable nature.” As EIA goes onto note, “Different planners answer the question “What is a reasonably conservative value to use?” in different ways.”

EIA displays the capacity value for wind capacity used in each electricity market during the time of publishing this article (2011), which haven’t changed much and are shown in the images below: (Minnesota’s MISO is listed within MRO)

In the image to the left, the dark blue bars represent total wind capacity in each market, and the light blue bars represent the available wind capacity during peak-demand hours. The percentages to the right were calculated by dividing the light blue bar value by the dark blue value and represent the “capacity values” each grid attributes to wind capacity, or the amount of wind capacity that was reliable enough to count on for peak-demand hours.

As you can see, the highest capacity value for wind was 18.5 percent in the WECC market.

Xcel wind facilities are currently receiving around a 15 percent capacity value by MISO, compared to fuel-based generators that have capacity values of 97 percent or greater.

Even worse, Xcel expects capacity values to project downward as more wind capacity is added to the grid, based on statements made during the release of Xcel’s upcoming resource plan.

Additionally, IER explains in their report why current practices for determining the capacity value of wind energy may be too generous. As the process currently stands, IER notes that it does not account for the following facts:

  1. Many peak load hours occur after 6 PM or in other months. [Some markets only consider timeframes before 6 PM]
  2. Over-generation during peak-load hours is valued as highly as the avoidance of shortfall. [This is because capacity values are only an “average” of wind capacity available for peak hours of electricity demand].
  3. Wind and solar fall short of their firm capacity allowance during about half of peak-load hours.

The third point may be the most important.

Even with low capacity values of 8 to 16 percent – meaning that for a 100 megawatt (MW) wind facility, only 8 to 16 megawatts can be relied upon to generate electricity during peak-hours – wind facilities still fall short of meeting this expectation about half the time.

This is why capacity values are so important to include in the renewable energy discussion, and why they are so important to calculate correctly, as IER has done.

Through honest consideration of the significance of capacity values, it’s not difficult to realize why relying on wind and solar for our electrical needs is so expensive.

Any electrical market incorporating substantial amounts of renewable energy will essentially need to build two power grids – one renewable and one dispatchable – under the complete awareness that one of these grids (the one consisting of renewable energy sources) is entirely incapable of reliably producing enough electricity to meet peak-demand and requires a separate grid consisting of fuel-based generators to remain on standby.

This leads to excess capacity by overbuilding power facilities on the grid, resulting in excess electricity costs to pay for them.

In Minnesota, this massive overbuilding has already been occurring in recent years as renewable energy mandates in the state have irresponsibly facilitated enormous investments in renewable energy sources.

Since 2004, after Xcel Energy became the first utility in Minnesota mandated to incorporate renewable energy sources into its energy mix, the amount of capacity on Minnesota’s electrical grid has grown by nearly 50 percent, while total annual electricity demand has only grown by 3 percent, as shown in the graph below.

This means that Minnesotan’s are now being forced to pay 26 percent higher electricity rates – rising from 10.60 cents per kwh in 2004 to 13.38 cents per kwh in 2018, in inflation-adjusted dollars – to maintain 160 percent more power plants – 274 more since 2004, to be exact – to produce the same amount of electricity.

Even though more than 1,000 megawatts of coal capacity have retired during this time, roughly 3,000 megawatts of new wind capacity have been built and more than 500 megawatts of solar capacity have been constructed, as well as another 3,000 megawatts of natural gas capacity.

As IER’s study highlights in their new report, Minnesota ratepayers could be saving enormous amounts of money each month on electricity expenses if policymakers and regulators simply allowed utilities to continue using existing resources.

Instead, they chose to replace every 1 megawatt of inexpensive coal capacity with 7.5 megawatts of combined wind, solar, and natural gas.

Great trade-off, eh?

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