By Josiah Neeley
Ed. note: This post by Josiah Neeley, originally published at MasterResource in November 2012, predicted the decline of reliable (dispatchable) power a decade before Storm Uri, the subject of yesterday’s post. Meanwhile, climate/renewable activists such as Chris Tomlinson (Houston Chronicle) was calling out the ‘fossil fuel-supporting Chicken Littles‘. Tomlinson (et al.) misinterpreted the event by focusing on the physical ‘why’ instead of the economic ‘why behind the why’ (here, here, and here).
“It is well known that Texas is undergoing a major challenge in maintaining resource adequacy due to improper price signals; less well known is that a significant portion of the problem can be laid directly on the doorstep of subsidies for wind generation.”
The federal Production Tax Credit (PTC), which currently provides a $0.022/kWh subsidy to qualifying renewables, is set to expire at year-end. Just the prospect of expiration has dramatically slowed new construction of industrial wind capacity, despite a raft of other subsidies to politically correct energy. [1]
The Texas Public Policy Foundation has released a new paper looking at the effect of the production tax credit both on taxpayers and consumers. Bill Peacock and I found that PTC continuance puts the Texas electricity market at increased risk of price spikes and blackout by discouraging the construction of new reliable, on-peak generating capacity.
Texans are not only paying for the PTC’s direct annual cost of $622 million; they could pay billions of dollars more from forgone capacity given negative pricing where wind producers generate unneeded electricity just to pocket tax credits.
Background
It is well known that Texas is undergoing a major challenge in maintaining resource adequacy due to improper price signals; less well known is that a significant portion of the problem can be laid directly on the doorstep of subsidies for wind generation.
When wind is bid into the market at a negative price, superior forms of generation must match that price or risk getting knocked off the grid. This decreases the profitability of non-wind generation and makes companies less likely to invest in new capacity. This has already degraded Texas’s resource adequacy, and it could get worse before it gets better. This increases the risk of blackouts if unusual events reduce capacity and/or increase demand.
Donna Nelson, chairman of the Public Utility Commission of Texas (PUC) explains this well:
Federal incentives for renewable energy… have distorted the competitive wholesale market in ERCOT. Wind has been supported by a federal production tax credit that provides $22 per MWh of energy generated by a wind resource. With this substantial incentive, wind resources can actually bid negative prices into the market and still make a profit.
We’ve seen a number of days with a negative clearing price in the west zone of ERCOT where most of the wind resources are installed…. The market distortions caused by renewable energy incentives are one of the primary causes I believe of our current resource adequacy issue… [T]his distortion makes it difficult for other generation types to recover their cost and discourages investment in new generation.
The Northbridge Group recently published a study confirming the distortions in the market caused by the PTC. Northbridge found that the five-fold increase in wind generation since 2006 parallels the increase in negative pricing. In ERCOT, negative pricing occurred between 8 percent and 13 percent of the time from 2008 to 2011.
Percentage of Hours with Negative Real-Time Electric Energy Prices in ERCOT, 2006-11
Source: The Northbridge Group
The disruption of the Texas electrical market by negative wind prices is only going to get worse as more renewable-specific transmission lines are built, and as the frequency of negative pricing in new parts of the state comes to resemble the West Zone.
As another recent report by the Brattle Group noted:
Wind generation puts downward pressure on energy prices in all parts of ERCOT whenever the wind blows. However, the effect is greatest in the West Zone, where more than 70% of ERCOT’s wind capacity is located…
The CREZ project is primarily designed to move electricity generated by wind and other renewable resources from remote parts of Texas (i.e., West Texas and the Texas Panhandle) to the more heavily-populated areas of Texas (e.g., Austin, Dallas-Fort Worth, and San Antonio). This transmission expansion will also increase Texas’s ability to build more wind generation, but may in the future erode non-wind generator economics more by depressing energy prices in the other three zones.
The Real Cost of Wind
It is difficult to quantify the cost of the PTC’s distortions on the market, though the Foundation will address this issue more fully in an upcoming paper. But one method of doing so would be of looking at the cost of solving Texas’ resource adequacy challenges.
PUC Commissioner Ken Anderson recently did some “back of the envelope” calculations of the cost of imposing a PJM-style capacity market on ERCOT. He came up with a cost of over $3.6 billion per year. The portion of this cost that can be attributed to renewable energy subsidies is debatable, but these costs could easily exceed the costs of the direct subsidies, more than doubling the costs on consumers.
At a bare minimum, renewables energy subsidies in Texas are costing more than half a billion a year. Because of the PTC’s per megawatt hour subsidy, it causes substantially more distortion to the market than other renewable subsidies.
A credible case could be made that the PTC is more responsible than any other factor in causing ERCOT’s resource adequacy challenges and thus driving Texas toward some kind of forward capacity market.
Conclusion
Competition is working in the Texas electricity market. It is government interference with the market—led by the PTC—that is causing the current reliability challenges.
Texas need not abandon wholesale competition and move toward a capacity market. But this will be difficult to avoid as long as the PTC is in place. Congress should allow the PTC to expire; if not, we may see the end of Texas’ world-class energy-only electricity market.
—————-
[1] The PTC is only one of the subsidies available to renewable energy producers in Texas. Others available in Texas include Renewable Energy Credits (RECs) under the state’s Renewable Portfolio Standard, federal grants under the 2009 stimulus bill, and access to transmission through the Competitive Renewable Energy Zone (CREZ) program. Altogether, renewable energy subsidies in Texas, including PTC, will cost taxpayers and consumers about $12.9 billion over the same period. [The PTC, set to expire at year-end 2012, has been extended six (6) times since this post.]
———-
Josiah Neeley is a policy analyst for the Armstrong Center for Energy & the Environment at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. Bill Peacock, coauthor of this post, is the Vice President for Research and Director for the Center for Economic Freedom at the TPPF. [Update: Mr. Neeley is Senior Fellow and Energy Director, Texas at R-Street]
What is “Negative Pricing?”…I can see now…Subsidies…an all too familiar part of Socialism…
Open bar when all the drinkers are puking their guts out.
Negative pricing occurs when more power is being produced than there is demand, and the utility has to pay people to take it.
Uber expensive?
improper price signals
Well, that’s one way of putting it.
Will Mad Ed Miliband be arrested for misconduct in public office?
Couldn’t the destruction of the UK economy be deemed “misconduct in public office”?
I guess being plain stupid is not a crime, but I don’t know that Mad Ed is plain stupid, although his actions certainly point in that direction.
Here’s a headline from CNN online, which is fairly relevant to the issue: “Trump says wind power is for “stupid people”. 5 days later, European countries agreed to build a massive wind farm.”
Trump is right.
Europeans should listen to Trump and take what he says about windmills seriously.
Energy independence or relying on (wannabe) dictators.
Tough decision.
I don’t know if I’d refer to the Wind Cartel as “wannabe dictators”, but ok.
Glad we agree.
From the mentioned article:
Time for Europeans to start singing, “drill baby drill”.
“Renewable energy” definitely changed the economics, for the worse. Incorporating them into the grid is the cause for price increases and bringing the grid closer to the brink of widespread, prolonged blackouts.
It was found on the internet so it must be true. How do we know? It says so on the internet.
The Communist News Network is not the most trustworthy or reliable source of objective news. Advocacy journalism reigns there.
Now show us the “independent” wind and solar only grid that is not backed up by fossil fuel plants. And then show us the wind turbines and solar panels manufactured with no fossil fuel energy inputs.
Oh, and since all the worse-than-useless wind and solar gathering equipment is “made in China,” or is made with resources controlled by China, wind and solar leaves Europe “relying on” an ACTUAL dictator.
It will be, but scaling up things take time.
I take lasts for 25 years over is burned once.
Europe is still producing its own wind turbines – sadly they destroyed their PV industry in favour of fossil fuel interests.
They didn’t destroy their PV industry, they were undercut on price by China. An actual dictatorship loved by socialists world over.
Like Mad Ed…
Mean time between failure of WTG is 4.2 years with 50% of the maintenance requiring replacement of major components.
25 years is a goal that is not met.
And since you do not like coal, oil, or natural gas, stop posting. Your computer is staining your fingers with oil. The integrated circuits reek of coal.
“It will be, but scaling up things takes time”
Also will take a magic wand
No reason Europe can’t build out nuclear and frack for natural gas or burn coal.
Hate to break it to you, but the European Commission are actual unelected dictators inflicting their stupidity on all of Europe.
Wind isn’t ‘energy independence’ either — even if it did work (which it doesn’t ~78% of the time), all the windmills are made outside Europe (and all the materials required for them definitely are).
Well, they laughed when he pointed out that relying on Russian has was stupid…does anyone really think they would listen now? Idiots…
And they laughed at Trump when he warned them about Russia in his first administration. Now they beg their big brother, America, to stay in touch and protect them from the big, bad bear. They were horrified at Vance’s speech last year but Rubio’s somewhat softer approach, they seem to like. A great good cop bad cop routine.
I saw that too.
Trump is tactical, but there are times when his strategic planning is awesome, but that could and should be a team process.
Remember the last time Europeans laughed at Trump?
Germany Reacts to Trump’s UNGA Speech
Oops.
The world still thinks he’s a clown with too much power.
Carney constructs a mega anti-Trump trade alliance
And US citizens will pay the price for it.
Trump doesn’t care what they think. A great leader wouldn’t. Oh, so now Canada will lead the world. That’s pretty funny. 🙂
You speak for the world, do you?
Lots of people think they speak for everyone. It’s a common human fault.
That article uses the word “clown” exactly zero times.
So your are inserting your personal opinions trying to upstage Politico?
I am sure they will applaud your endeavors to show them the right way to report the news.
Nothing in that article makes claim DJT has too much power.
It was discussing leaders assessing alternatives to the tariffs.
No where in that article was US citizens mention let alone “paying the price for it” whatever “it” you are referencing.
When one sees the word “mega” in a headline, one knows there is hyperbole ahead.
Many may not like him, but they respect him.
Obama/Biden were liked, but not respected.
I’ll take the first option.
“Obama/Biden were liked, but not respected.”
Well, that depends on who you ask.
I personally don’t like either one of them. I think both of them are literally Traitors to their Country. They should both be in jail along with their traitorous underlings and cronies.
Don’t sugarcoat it like that. Tell us how you really feel. 🙂
You may like Isaac Moreno Gallo
https://www.youtube.com/watch?v=5Y1yqk91qWY
More energy injustice
You may like Isaac Moreno Gallo
https://www.youtube.com/watch?v=5Y1yqk91qWY
More energy injustice
From the article: “When wind is bid into the market at a negative price, superior forms of generation must match that price or risk getting knocked off the grid.”
Trying to shoehorn unprofitable windmills and solar on to the electrical grid is the cause of higher electricity prices and is the cause for putting our grids at risk of blackouts.
There were no blackout warnings before windmills and solar were added to the grid. Today, there are blackout warnings on all the grids every winter and summer.
It is ridiculous to shut down a conventional power plant in favor of unreliable windmills and solar.
Windmills and solar should get NO special pricing. They will go out of business without special pricing. The sooner, the better.
Wind Power Anthem
(Sing with gusto)
“My country ’tis of thee
Sweet land of subsidy
Of thee I sing”
Etc.
To the same tune used for the British national anthem. How appropriate.
China sez winds are better up higher. They built a blimp shaped like a turbine and flew it up a thousand feet with a generator and claim it produces enough power for 10 homes. You have to give’em credit for being inventive regardless if whether it’s a good idea.
They are inventive- like with robots.
Kung fu fighting robots take stage in China
Meanwhile the US is moving to this:
Better a technology that works and is reliable, than one that doesn’t and isn’t.
I know lots of people who would be thrilled to see a D&RGW articulated under steam again. A more appropriate picture would have been UP 4014.
Union Pacific restored a Big Boy locomotive but it was converted to fuel oil instead of coal. It helped win WW2 but there was a locomotive in Pennsylvania that was too heavy – it actually was tearing the track up.
Some parts of the US have some decent trains. The Amtrak northeastern line has some new trains I’ve seen on YouTube. Most Americans would rather cross a continent on a jet and we like driving. Europe is different- lots of cities close together so it makes sense to have a dense network. But yuh, that video of Chinese robots is pretty impressive, if it’s not AI. Even if it’s AI, its still impressive! Speaking of AI, I just tried chatGPT for the first time and I was dam impressed. Before signing off I told it that I was impressed- and it replied, “that’s so kind of you!”.
WTF? I made it’s day. Made it happy! 🙂 Looks like a new addiction for me.
AI does have an impressive human language interface.
Shredder, is that you?
Say what?
Wind is stronger higher up. Friction with the ground slows it down at low elevations. The question is, is the extra wind aloft enough to compensate for the extra cost of building and maintaining airborne turbines?
For myself, I doubt it.
Won’t they fall out of the sky when the wind stops blowing?
Filled, no doubt, with helium.
“They built a blimp shaped like a turbine and flew it up a thousand feet with a generator and claim it produces enough power for 10 homes. You have to give’em credit for being inventive regardless if whether it’s a good idea.”
I vaguely remember a discussion online a few years ago about either using kites or helium balloons to loft wind turbines to “steady and fast-flowing” (stratospheric ???) trade winds / jet streams.
I think the “killer” response to scaling up that particular “good idea” was when the power rating exceeded (roughly ?) 1 MW … “How heavy is the cable (per 100 metres) ?“
Let’s put up a lot of those and shut down airline and miliary air transport.
Regardless of cost or price, the VALUE added by non-dispatchable power is only the avoided fuel cost for the conventional power plants they intermittently displace. The capital, maintenance, and operating costs of the “standby” systems remains the same.
Indeed, and as I try to point out to certain people here who will remain unnamed, the fuel cost, except in unusual circumstances*, is a small fraction of the retail price of service. Which is why plotting retail cost against penetration of renewables into the grid often doesn’t show directly why renewables increase cost of service.
Look at PJM’s recent capacity auction. If the reporting I read is accurate they were something like 6,600MW short of their goal. What fraction of bids in this auction came from renewable energy plants? Well, that would about 1%. They can’t bid except for inconsequential amounts because they have no faith that they can actually deliver when called upon and will end up having to purchase on the market themselves.
There are innumerable methods of “valuing” the contribution of renewables to a functioning grid, with each successive try at it being smaller than the last. Nameplate, then capacity factor times nameplate, then seasonal capacity factors, then ELCC, then a statistic I calculated which I defined as “what capacity factor can we count upon during highest 25% of demand say with 95% probability”. At this point we are around 7% of nameplate with regard to wind.
*In January of 2023, for example, the price of natural gas to electric power producers in Utah where PacifiCorp’s gas fired plants largely reside, rose to roughly $40.00 per mmBtu. That is an unusual price writ large and due to the aftermath of Ukraine/Russia war and sabotage of pipelines. You see very little about the price rise in the EIA data of generation by gas, but we got hit with a temporary 6% addition to our utility bills.
Is anyone actually paying them to take electricity they don’t want ? Usually “negative” pricing is an accounting scam and no real person actually gets anything….
The practical impact is that other sources get dialed back to accommodate the subsidized renewables. Capital, maintenance, and operating costs get spread across fewer kWh and their break-even cost increases.
So why is it that those negative prices never trickle down to the consumer? There is never a time of day when they pay me to use electricity. If there were, I would construct a 250 kW load sink. I would do more but that maxes out the transformer to my drop.
It is because the consumer rate schedules are approved in a general rate case by the PUC, and the effect isn’t really observed until perhaps years later. By that time many other factors have intervened.
Very nice Josiah. Wind and solar shouldn’t even be an issue, they can’t support a modern society and they foul up the grid. If it weren’t for mindless government interference by way of subsidies, tax preferences and mandates wind and solar wouldn’t even be a part of the discussion. Think about how corrupt this situation has become thanks to government. Can you imagine the howls if government allowed Exxon to sell its product at below cost and not suffer financially. Yet we are talking negative pricing here. There are a whole bunch of people who should be in jail. It makes me sick.