Saturday, September 21, 2013


by Michael Goggin 
Several recent press articles, including one in the New York Times, have misrepresented the consumer and environmental benefits wind energy is producing in Germany. These articles have misleadingly looked at small snapshots in time that miss the large consumer savings and pollution reductions wind energy is producing in Germany. Moreover, wind energy’s benefits for consumers and the environment are even larger in the U.S., where wind resources are typically 50% more productive than those in Germany.
Consumer benefits in Germany
In Germany, wind energy affects two parts of a consumer’s electric bill, increasing one but decreasing the other. The New York Times and other articles have only focused on increases in a small component of German electric bills, the renewable energy surcharge, while ignoring how wind energy is drastically driving down costs for the component that makes up a much larger share of the total electric bill, the actual cost of electricity. This is essentially doing a cost-benefit analysis and not looking at the benefit side of the ledger book.
Germany has already seen a 20% drop in wholesale electricity prices over the last year, in large part because wind and solar energy displace more expensive sources of energy. Grid operators use an electricity market to select which power plants should run, picking the plants that have the lowest cost of producing electricity first and then using more expensive sources until they have purchased enough supply to meet electricity demand. Wind and solar enter the market as the lowest cost resources because their cost of producing an additional amount of electricity is nearly zero, given their lack of fuel costs. As a result, grid operators use renewable output first and use it to replace the sources of energy that have the highest fuel costs, which are usually the least efficient fossil-fired power plants. This produces massive benefits for consumer sand the environment.
Unfortunately, German electricity customers are only beginning to see these savings because of the year or two regulatory lag in updating retail electricity rates to account for changes in wholesale prices. In addition, the renewable costs appear larger than they are because Germany does not charge large industries the renewable surcharge, forcing smaller customers to bear nearly all of this cost while German industry receives the cost-reducing benefits of renewable energy without bearing the costs. Finally, wind energy’s impact of driving down electricity prices has actually had the perverse effect of making the cost of the surcharge misleadingly appear larger than it is, because what counts as the surcharge is calculated based on the difference between a fixed Feed-In Tariff amount and the wholesale electricity prices that wind and solar are drastically driving downward. As a hypothetical example, if the feed-in tariff for wind energy were fixed at 6 cents/kwh, and renewable energy drove the wholesale price of electricity down from 5 cents/kwh to 4 cents/kwh, the renewable surcharge would appear to have doubled from 1 cent/kWh to 2 cents/kWh, even though the actual cost to society remained roughly the same.
Germany is making a prudent long-term investment to reduce its dependence on expensive and volatilely priced fossil fuels, particularly natural gas that is imported from Russia. Like energy efficiency upgrades or any smart investment, to reap long-term returns it is necessary to make an investment that has up-front costs. This effort enjoys very wide support among the German people, despite the efforts of the New York Times and others to paint it in shades of doom and gloom.
Pollution reductions in Germany
The New York Times article’s discussion of carbon emission trends in Germany falls into the same error of only taking a small snapshot of time, but is even more misleading. The New York Times focuses on the fact that carbon emissions ticked up slightly in 2011, with the context strongly implying that renewables were somehow to blame for that increase.
Of course, 2011 was the year in which Germany abruptly shut down a significant share of its nuclear generating fleet following the events at Japan’s Fukushima nuclear plant. To anyone taking an objective look at the data, the most noteworthy fact is that Germany’s emissions didn’t increase more after the country had to replace nuclear’s zero emission electricity with other sources (plus other factors causing emissions to increase, such as a shift from gas to coal driven by a spike in natural gas prices, as well as an increase in electricity exports). As the data indicate, you can thank wind and solar energy for making would have been a massive spike in emissions into a minor blip.
The reality is that, over the last decade, wind energy has allowed Germany to greatly reduce fossil fuel use and pollution, reductions that would have been even larger had the country not also greatly scaled down its use of nuclear power over that same time period.
As documented by International Energy Agency data, as Germany ramped up its use of wind energy, coal use by Germany’s electric sector fell by more than 12% between 2004 and 2010, a reduction of 20 million tons per year. Wind energy was able to drive that reduction in coal use despite nuclear power output declining by 16% over that time period (falling from nearly 34% of the country’s electricity mix in 2004 to less than 25% in 2010).
Other European countries that have adopted even greater amounts of wind energy than Germany have seen even larger declines in pollution and fossil fuel use. Because Spain and Portugal now obtain 15% and 20%, respectively, of their electricity from wind, up from around 1% a decade ago, they have cut in half the amount of carbon dioxide their electric sectors emit per unit of electricity produced. Electric sector coal use in Europe’s top five wind-using countries fell by 21% between 2004 and 2010. These savings totaled more than 100 million tons of coal per year.
The easiest way to assess the impact wind energy has had on pollution is to compare the emissions trend in the five countries that lead the world in wind energy use (Germany, Spain, Portugal, Denmark, and Ireland) versus the trend for similar countries that have not deployed as much wind energy. Between 1999 and 2010, each of these five countries greatly increased its use of wind energy, as shown in the table below. For the comparison case, the aggregation of all European OECD countries increased its use of wind energy by a much lower amount.
The best measurement of a country’s emissions profile is to look at changes in the amount of CO2 emitted by the electric sector for every unit of electricity produced, i.e., the emissions intensity of a country’s electric sector. One would expect that adding a zero-emission resource like wind energy to the power system would reduce the emissions-intensity of the country’s electric sector, and International Energy Agency data presented in the table below indicate that this is the case. The countries that added the most wind energy saw the greatest declines in their emissions intensity, while countries that added less wind energy (like Germany and the aggregation of all OECD Europe) saw smaller declines in their emissions intensities.Table 1: Percent Change in Electric Sector CO2 Emissions/kWh from 1999-2010
% Change in CO2emissions/kWh from 1999-2010
Increase in wind’s electricity percentage share from 1999 to 2010
All OECD Europe
Interestingly, Germany would likely have seen a much larger decline in emissions intensity had the country not decreased its use of zero-emission nuclear energy by 16% over the 1999-2010 period.
To sum up, it is important to keep in mind that the temporary and small uptick in coal use in Germany over the last two years is purely the result of the country shutting down many of its nuclear power plants following the events at Japan’s Fukushima nuclear power plant in early 2011. As Germany continues to ramp up its use of wind and solar energy, the decline in fossil fuel use and carbon dioxide emissions will resume.
Consumer benefits and pollution reductions in the U.S.
Wind energy’s benefits for consumers and the environment are even larger in the U.S., where wind resources are typically 50% more productive than those in Germany. The U.S. wind energy fleet is currently reducing carbon emissions by nearly 100 million tons per year, the equivalent of taking 17.5 million cars off the road.
In the U.S., wind turbine costs have fallen by around 1/3 over the last several years, due to improvements in wind turbine technology and the fact that a majority of wind components are now manufactured in the United States. As a result, utilities and their state regulators are finding that investments in wind lower costs for their customers.
At least 74 U.S. utilities bought or owned wind power in 2012, up 50% from a year ago. Southern Company recently made its third wind energy purchase, explaining that wind energy reduces its customers’ electric bills. Similarly, Oklahoma Gas and Electric estimates that a single wind project will save Arkansas customers $46 million. In July, Xcel Energy announced that a single wind purchase will save its customers $590 million in fuel costs, noting that “We are making these acquisitions purely on economics and the savings we can deliver to our customers.”
Synapse Energy Economics recently released a report that indicates doubling the use of wind energy in the Mid-Atlantic and Great Lakes states beyond existing standards would save consumers a net $6.9 billion per year, after accounting for the cost of wind and transmission. The study found that this amount of wind would reduce the region’s carbon dioxide emissions by 14%, or 50 million tons per year. Similarly, the New England grid operator calculated that obtaining 20% of the region’s electricity from wind would reduce electricity prices by more than 10%, while also reducing carbon dioxide emission by 25%.
In addition, U.S. Department of Energy data confirm that consumers in the top wind energy producing states have seen their electric rates increase at around half the rate of consumers in states that produce less wind energy.
Table 2: Consumers in the top wind energy states have seen their electric rates increase at around half the rate of consumers in states that use less wind energy
Ranking for wind power
Electricity price increase, 2005-2010
Bottom 30 wind power states
Top 20 wind power states
Top 10 wind power states
As we and others have noted, fossil fuel industry groups in the U.S. and Europe have been propagating myths about Germany’s experience with renewable energy. It is unfortunate that these myths have now made their way into respectable publications without any critical analysis or regard for what is actually happening in the U.S. and Europe. An objective look at the data clearly shows that wind energy is win-win for consumers and the environment.