The high price of free power
IPN Critical Opinion articles
Curious alliances pit U.S. Sen. Edward Kennedy against his environmentalist allies in a dispute over a proposed wind farm in Nantucket Sound. There are shouts of NIMBYism, saving the environment, damaging the environment, and plenty more. But there is little about wind power's huge subsidies, its inefficiency, and, indeed, its damage to the environment.
Supporters of the Nantucket Sound project say that wind power reduces greenhouse-gas emissions, cuts dependence on fossil fuels and energy imports, and, the icing on the cake, creates jobs. Surely it must be the solution to many of the world's biggest problems?
To see if these alleged benefits stand up to closer scrutiny, it is worth studying some rare longer-term figures from that shining example of a country with a successful wind-power policy: Germany.
Since the 1980s, wind energy has been promoted and subsidized by German governments, with wide political support. In 1991 all parties backed a law forcing utilites to buy electricity from wind-energy companies at 90 percent of the average retail price, making suppliers and therefore consumers pay for the growth of wind farms.
Building wind farms became popular among farmers seeking extra income from their pastures and among underused shipyards trying to diversify. Many schemes were in underdeveloped regions, so many local politicians backed them. Later, investors in wind energy could also deduct investments from taxes, making the deal attractive for high earners.
Incentives further improved with the Renewable Energies Act of 2000. This removed the link to retail energy prices, which had fallen, thanks to liberalization of the electricity market, and replaced it with a guaranteed price of 0.091 euros per kilowatt hour for wind farms -- a good three times the German average production cost of electricity, of 0.025 to 0.03 euros.
As a result, Germany produces around 3.1 percent of its electricity from wind energy, but this comes at the cost of an annual subsidy of around 4 billion euros (some $5 billion).
But what about the alleged benefits for the economy and the environment? It is often asserted that wind power has created some 45,000 jobs in Germany. But with a subsidy of 4 billion euros anyone can create jobs -- although, at more than $100,000 per job per year, it would be cheaper to send these workers on permanent vacation to Hawaii.
The full picture, according to a 2004 study by Bremen University's Energie Institut, is that wind farms actually lower employment, thanks to higher energy prices for the economy.
And as if the economic impact were not bad enough, it also seems that the ecological benefits of German wind energy exist only in the imagination of its supporters.
First, the wind in Germany is unsteady, so wind generators operate at full capacity for about 1,400 hours per year, on average -- just over 58 days' worth. Whatever the projections for the Nantucket Sound site, Britain, claiming better wind conditions than Germany, still only managed to reach a third of its wind-power capacity in the very windy year of 1998, according to its Department of Trade and Industry. Therefore, every wind turbine still needs full conventional-energy backup.
Secondly, even if wind power did decrease the amount of carbon emissions from conventional-electricity firms, those utilities could sell on those carbon savings to anyone else: "carbon-emission trading" gives companies an emission allowance and lets them buy or sell it, locally or internationally. A 2004 report for Germany's Federal Ministry of Economics showed carbon reduction would be zero, at the considerable cost of higher energy prices.
Thirdly, another concealed environmental problem is carbon emissions from manufacturing turbines. The wind sector is now the second-biggest consumer of steel, after car makers, in Germany. At lower wind speeds you need more than 10 units of iron for a given output, compared with around two units for coal, one for gas, and half a unit for nuclear.
In fact, Germany's wind-energy campaign has been extremely expensive and has probably destroyed jobs. Its ecological benefits under carbon trading are nonexistent, and it needs full conventional backup.
The German experience does not prove that wind energy can never be viable, but it does show that government interference with the market can create enormous economic and ecological distortions.
If wind energy really is the energy of the future, as the developers claim, it must prove itself in the market without government subsidies. This has not yet happened anywhere; the projections are all based on artificial models with hidden costs -- costs for you and me, the taxpayers and consumers.