I am all for a diverse energy portfolio and truly believe we can get to the 1/3-1/3-1/3 mix that we’ve put forward by 2040. A third fossil, a third nuclear and a third renewable would be sustainable and ethical.
Having said that, Location! Location! Location! holds true as much for energy as for real estate. There is such a thing as the geographic component. It makes sense to develop more solar in the southwest than in Maine, to have hydroelectric plants on rivers, and to build wind in windy areas to replace coal generation and lower CO2 emissions.
Although this might be obvious on first blush, the concept of optimizing energy sources to physiographic regions really gets trashed when tax laws and State mandates bully their way into the mix (Earthtechling; Hydro Takes Dive For Wind).
The Bonneville Power Administration (BPA) administers most of the electricity generation in the Pacific Northwest region, defined as Washington, Oregon, Idaho and Montana west of the Continental Divide. Hydroelectric produces two-thirds of our electricity. Because of this, the Pacific Northwest is the lowest carbon-emitting region in America. Over the last few years, wind has expanded dramatically, up to about 7% of production. Nuclear, gas and coal together produce the other 30%.
Because the region has so much renewable hydroelectric energy, the State had to step in and declare hydro to be not a renewable in order to use renewable mandates and credits to force more wind development (Wire). This was rather bizarre since all discussion of renewables – you know, those great pie-charts illustrating how large the renewable share of the mix has become – always includes hydro as a renewable.
But the hour-by-hour electricity generation tells a special story. The figure below is a graph of BPA’s continuous electricity demand and supply for the week of Jan 7, 2014. During this week, the region experienced some significant, and some would say steady, winds on the BPA grid, the best we’ve seen in the last year (it kept me awake all week). Steady is a relative term, however, and the variability of wind’s 4,200 MW-installed capacity still drives BPA controllers insane.
But notice that the thermal generation (nuclear, gas and coal) does not vary much at all. It is the hydro component that has to constantly cycle up and down to adjust to the demand and to wind’s intermittent supply. This competition between two renewable sources means that the relatively carbon-free accruable hydro energy must be shed to take on the wind supply, with no net benefit in carbon emissions or energy cost.
But constant cycling between 2,000 and 4,000 MW produces significant wear on the hydroelectric turbine gates.
The following graph compares wind energy production and total demand (or load) for the first half of January 2014. Wind is weakly, but negatively, correlated with demand, meaning wind energy generally comes onto the grid when it’s not needed. Thus the constant need to ramp down hydro production to accommodate.
Over the last several years in the Pacific Northwest, we have spent about $5 billion and impacted over 50,000 acres of pristine public land for the privilege of throwing away 9 billion kWhrs of carbon-free energy every year (NREL). Just so we can meet an arbitrary state mandate, claim we’re green, and make a few folks lots of money in tax credits, the cost of which gets passed onto the rate-payers and tax-payers.
Surprise! It’s all about the money.
Joseph Somsel laid out the tax incentives very succinctly in an article in the American Thinker. Since hydro is tapped out in the United States – there will be no new large hydro plants built in the coming century although we will hang on to the ones we have for at least another 50 years and may electrify older small ones – we’ll use new GenIII nuclear as the other low-carbon baseload generator as the example.
If you build something like 5,000 one-MW wind turbines, or a single 1,000-MW GenIII nuclear power plant, both for $7 billion, the business is allowed to deduct the capital costs of these fixed assets from their annual revenues. So the tax burden is greatly lowered for that particular year./>
However, the business can’t take all that deduction in a single year but has to stretch it out over what is the useful life of that asset. Since the tax code has been tweaked to encourage what lawmakers think is best, and allows something called accelerated depreciation, a business can recover the capital costs earlier in the asset’s life rather than later, an extremely valuable ability in building anything big, be it the Golden Gate Bridge or a power plant.
On the other hand, nuclear power plants are forced to take their write-offs over 20 years, resulting in a significant financial disadvantage. One which is totally arbitrary.
For a $7 billion investment, this means investors in wind get $3 billion more in write-offs in the first 3 years than nuclear does. They get this benefit while producing much less electricity than the nuclear plant over that time (15 billion kWhrs versus 25 billion kWhrs, respectively), with a total life-span a third of that nuclear plant (20 years versus 60 years).
Add on the production tax credits for low-carbon wind that low-carbon nuclear doesn’t get to have (between 5 and 8 cents/kWhr), and there is no doubt that wind will fight to the death to build wherever it can regardless of the logic of the place. Wind is literally being paid to build by tax-payers and rate-payers as fast as they can get public o r rivate land to do so.
Yes, we can do a better job of bringing renewables onto the grid. We can be more efficient in utilizing them and addressing their intermittency. BPA and other providers have done a great job, expanding staff and adjusting operations to support power sales as frequently as every 30 minutes (BPA News). But it’s still adjusting to an inherently bad set-up.
If we are to achieve a sustainable energy mix that addresses both our energy needs and our environmental concerns, we need to be smarter about where we locate each energy source and what the unintended consequences are for putting them there.
I can’t fault wind investors for this situation. After all, in a diverse world, natural selection means you use whatever you can to eat your competitor. Just think of lawmakers as a natural selection pressure.
Like big teeth.