Leland Teschler's Editorial: The Economics of Renewable Energy

Aug. 18, 2009
The economics of renewable energy

Judging by the mail we receive at MACHINE DESIGN, a lot of our readers are skeptical of wind and solar energy. But whether we like it or not, indications are that a huge green-energy boom is coming. It’s coming because U.S. state and federal governments say it will.

Thirty-two states (and Washington, D.C.) have set minimum requirements for renewable-energy sources. To fund this effort, the federal government will provide construction grants for up to 30% of the cost of alternative- energy projects breaking ground by the end of next year. The Dept. of Energy set aside $10 billion to guarantee construction loans needed to build renewable facilities.

You might think that the large amount of taxpayer money thrown at green energy was based on a detailed analysis of economics. Unfortunately, this isn’t the case. There is no comprehensive literature on the prospects for renewable-energy sources or their comparative costs.

Mulling over this lack of definitive information, Geoffrey Heal, a business professor at Columbia University, surveyed renewable-energy economics in a paper for the National Bureau of Economic Research. He concluded that renewables face a major problem: intermittency. After all, the wind doesn’t always blow and the sun doesn’t always shine. He says intermittency hasn’t been adequately factored into discussions about renewable sources. “Without new storage technologies that can overcome this intermittency,” says Heal, “much of the decarbonization of the economy will have to come from nuclear, carbon capture and storage, and energy efficiency.”

The problem Heal highlights is that intermittency prevents renewables from being used to handle what’s called base load: the level below which power demand never falls. To play a role in handling base load, renewables would need to store power generated when there is no demand for it. Heal says the cost-per-kilowatt figures used to compare renewable sources with conventional power generators never include the cost of storage. Until there is a practical way of setting up this kind of storage, there will be a continuing need for coal or nuclear sources to handle baseload power.

There is an additional problem with wind turbines in that the best sites for wind lie far away from connections to the national power grid. But figures for wind-power costs don’t include those for stringing grid lines out to wind farms. And these costs can be significant. A recent study of costs for connecting wind farms in the Texas panhandle to major cities arrived at prices ranging from $1.8 to $2.07 million/mile.

Heal also tries to figure what it would take to meet the U.S. DoE’s goal of getting 25% of the nation’s electricity from renewables by 2025. He comes up with about 2 trillion dollars plus the cost of grid connections. This is about 15% of our current GDP or about 1% of GDP annually for the next 15 years. That’s probably not going to happen.

One lesson from Heal’s work is that deliberate efforts at energy efficiency are going to be important for our national energy goals. And that is the reason the publishers of MACHINE DESIGN recently debuted a new publication on the subject. Energy Efficiency & Technology magazine published its first issue this month. You can find out more at www.eetweb.com.

— Leland Teschler, Editor

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