Exelon-funded report inflates wind energy integration costs

A so-called economic study on wind power being circulated by Exelon Corp. contains some serious errors.

The report, prepared by Jonathan Lesser of Continental Economics, says wind integration costs are five times higher than they actually are.  The real total integration cost for wind is under $100 million, which works out to about 3 cents/month on the average electric bill, versus the savings of $5-15/month for wind indicated in a recent Synapse Energy Economics report looking at the effects of adding large amounts of wind to the Midwest utility system, so consumers clearly come out ahead.  More importantly, $100 million or $500 million is still far less than the $45 billion to $75 billion per year that consumers pay for integrating the unexpected outages of large fossil and nuclear plants. The DOE-funded Eastern Interconnection Planning Collaborative (which is controlled by the transmission-owning utilities as well as states in the eastern U.S.)estimated the net present value of those costs on page 61 here: http://www.eipconline.com/uploads/Phase_1_Report_Final_12-23-2011.pdf . Those fossil and nuclear costs are $2/MWh of generation, so wind energy at $1/MWh is cheaper to integrate on both a per-MWh basis and a total basis.

In the real world, integrating large amounts of wind power has not affected utility reliability. Last year, wind reliably provided around 20% of the electricity in Iowa and South Dakota. Xcel Energy’s utility in Colorado has reliably obtained more than 55% of its electricity from wind on some occasions. Grid operators in Europe have gone even higher, with wind energy providing more than 90% of the electricity in Portugal at some points. All of this has taken place without reliability problems.

Just ask grid operators in Texas about the reliability of wind. In February 2011, wind energy helped keep the lights on when around 100 fossil-fired power plants broke down in extreme cold. Wind energy earned special accolades from the head of the grid operator for producing as expected while fossil plants failed. This illustrates that a diverse portfolio of resources is essential to having a reliable andcost-effective power system, and wind energy is an important part of that mix. Adding wind energy improves electric reliability, decreases consumer costs, and protects consumers from volatility in the price of fossil fuels.

The challenge and cost of integrating wind is far less than the challenge and cost of integrating large nuclear and coal power plants in the utility system. While wind output changes slowly and predictably over many hours, the frequent outages at nuclear and coal plants occur in a fraction of a second and without any warning. As a result, to accommodate coal and nuclear plants, grid operators must keep enough expensive, fast-acting reserves online 24/7/365 to manage the loss of any one of those plants, a cost that runs into billions of dollars per year and is paid by all electricity consumers. All analyses of the costs of integrating wind energy have found them to be a small fraction of this cost.

Wind energy resources in the U.S. are very diverse, and many produce when utility system operators need electricity the most. The Texas example cited above is an important illustration of this point. Many wind plants produce a large amount of electricity during summerpeak demand hours, and most wind plants have very high output during the fall and spring “shoulder months” when a large share of electricity shortages occur because many fossil and nuclear power plants are down for maintenance. The interstate transmission system allows increasing wind generation in one area to offset decreasing wind generation in another area, so the resulting output of the wind fleet over a large area is generally very stable. Moreover, wind energy forecasting allows grid operators to plan ahead and reliably accommodate changes in wind output, just as they have always accommodated much larger swings in electricity demand. Wind farms receive credit for meeting peak demand only if they are operating during peak demand hours, so all resources are being compensated fairly. Data from electricity markets in the U.S. confirms that the quantity of energy produced is many times more valuable than the amount that is produced during periods of peak demand.

The value of wind energy is high, as each MWh of wind energy displaces the output from the most expensive, least efficient power plant that is currently operating. As a result, wind energy produces large savings for consumers, as well as major reductions in pollution. Studies like the May 2012 analysis by Synapse Energy Economics have found that adding wind energy to the grid can reduce consumers’ electric bills by between $65 and $200 per year.

The fact is that wind reduces wholesale electricity prices.  This benefits homes and businesses, but concerns Exelon because the low power market prices squeeze its profit margins. While Exelon has cited shale gas and low power demand as the causes of lower power prices squeezing its profit margins when it sells nuclear power into these markets, it is true that wind is also lowering power prices.  Wind’s ability to reduce electricity costs for homes and businesses is well documented and it is a good thing for the country. We should want more, not less, low power prices, regardless of what some competitors think.

By Michael Goggin, AWEA Manager-Transmission Policy, http://www.awea.org/blog/