Wind’s Cost Is Underestimated; Its Value Overestimated

Probably the most common wind energy question that I receive from analysts, reporters, and interested citizens deals with the cost of electricity from wind. The frequency of the question is understandable since estimates provided by the wind industry, federal and state agencies, contractors, and the media understate the true cost and ignore the fact that electricity from wind is very low in value.

Typically, those asking the question would like a simple way to compare the cost of electricity from wind with the cost of electricity from other sources. Unfortunately, that isn’t possible. For those who insist:

• The first short answer is that the true financial cost of electricity from wind is huge compared to electricity from reliable generating sources.
• The second short answer is that the cost of electricity from wind should not be compared with the cost of electricity from reliable generating sources because the value of electricity from wind is much lower.

Pervasive Misunderstanding of the True Cost and Value of Wind Electricity

Few people in the general public, media, or government know the facts about the high true cost and low true value of electricity from wind. For example, not long ago, the delegate to the General Assembly representing my district in Virginia stated repeatedly during a telephonic “town hall” that electricity from wind “is now competitive” with electricity from coal. The delegate has a degree in electrical engineering and a long record of accomplishments in electronics. His statement is consistent with claims often made by wind industry lobbyists. Unfortunately, the statement is false.

The delegate’s false statement is understandable since the U.S. Department of Energy’s national laboratories and other contractors (all paid with tax dollars), the wind industry, and other wind energy advocates have for years issued false and misleading claims about the cost and value of electricity from wind.

Critically important among the elements of true cost that wind energy advocates often understate or ignore is the huge cost of tax breaks and subsidies provided to the wind industry. Wind industry lobbyists have been exceedingly effective in winning tax breaks and subsidies from governments. When initially proposed, wind energy advocates argued that tax breaks and subsidies were necessary to permit a relatively “new and developing technology” to gain a foothold in competition with other sources of energy for producing electricity.

That was in the 1992 Energy Policy Act, which created renewable energy production tax credits. Nearly 20 years later, the wind industry says it still needs those subsidies.

Federal, state, and local government tax breaks and subsidies for wind have become so prevalent that it’s virtually certain that the politicians and regulators who provide them have no understanding of their magnitude and cost. It’s also clear that they have not weighed benefits and costs. There is no question that they have decided to put the special interest of the wind industry ahead of the interests of taxpayers and electric customers who are paying for their largess.

Wind industry demands for continuation, expansion, and extension of subsidies have made it clear that there are no longer any serious expectations that wind energy is competitive or that improvements in the technology will eventually make it competitive. The original argument for wind subsidies no longer has any validity.

Instead, it appears that the only hope that wind energy would become economically competitive with traditional energy sources is if the cost of electricity from traditional sources were driven much higher—with all the adverse impacts on electric customers and local and national economies that result from high electricity prices.

Improving Understanding of Wind Energy Costs and Value

The false claims and the widespread misunderstanding about the full costs and the low value of electricity from wind demonstrate that it is time to focus on facts.

One hopes that once the factors that affect the true cost and value of electricity from wind are understood, analysts, investors, reporters, and others interested in honest comparisons of costs and value will be able to make realistic estimates of at least the costs per kilowatt of wind generating capacity. But reliable estimates of the cost per kilowatt-hour of electricity produced by wind farms will still not be possible because such estimates are entirely dependent on factors that are and will remain unknown. Assumptions (i.e., guesses) made by those who claim they know the cost/KWh of electricity from wind can easily be in error by a factor of two or more.

Whether estimating the true cost of wind generating capacity or the cost of electricity produced from wind, the cost of federal, state, and local tax breaks and subsidies are dominant factors. There is no longer any serious doubt that tax breaks and subsidies – not environmental, energy, or economic benefits—are the primary reasons that “wind farms” are being built.

—Glenn Schleede is a veteran Washington energy analyst who has represented coal and electric power interests, served in several energy-related federal agencies, and was a major official in the Reagan administration’s Office of Management and Budget.