The Babylon Project - Blog - Wither the Wind when It’s Blowing from Starboard?

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Jul172009

Wither the Wind when It’s Blowing from Starboard?

Friday, July 17, 2009 at 10:52AM

Reasoned and articulate as George Will observations are, the pre-existing condition that is his ideology typically infects his conclusions. “Politically driven investments are economically counterproductive,” says Will. So it was he welcomed a report on the Spanish wind industry by a libertarian economist named Gabriel Calzeda. The eye-popping conclusions were that wind industry jobs cost $1.4 million/per to create negating 2.2 jobs elsewhere, resulting in 110,000 jobs lost to a Spanish economy that is reeling from 18.1% unemployment. Considering the source (not having read the report itself), Press Secretary Robert Gibbs dismissed out of hand the report’s contentions (as green workforce developers certainly would).

There is something to be said for Will’s dismay “by the frequency with which such findings (Calzeda’s report) are ignored simply because they question policies that are so invested with righteousness that methodical economic reasoning about their costs and benefits seems unimportant.” A few years back the Long Island Offshore Wind Farm (LIOWP) posed this very predicate. Island environmentalist working with the Long Island Power Authority (LIPA) and the backing of both county executives and the governor presented LIOWP as God-given and cost-free. They pointed to all the offshore wind turbines in Europe and declared, if they can do it there, is no reason we can’t. One thing, none of the promoters ever set about figuring exactly how the Europeans did, in fact, do it.

When first introduced by LIPA’s gusty chairman, the price tag for 144MW was $200 million which rose to $356 million within a year where it hovered for some time as clamoring for a precise accounting built. LIOWP developer, FPL, resisted, citing ‘proprietary’ concerns. In April of 2007, the Town of Babylon released a detailed cost analysis based upon wind industry sources and comprehensive data maintained by the UK’s Department of Trade & Industry. (Of note: Denmark, the country environmentalist most often point to, is, effectively, a vertically integrated wind industry and as proprietary with its data as FPL.) Babylon concluded that the price tag for LIOWP was closer to $668 million. Seven weeks later FPL concurred when it released its revised estimate - $696 million – and soon thereafter resigned from the project.

Divide the 144MW ‘nameplate capacity and multiply by Britain’s offshore production of 28% (not the 35% suggested by LIPA promoters) and the ‘load capacity’ for LIOWP would have been somewhat north of 40MW. Wind was no longer free but, in fact, $17.25M/MW compared to $3M for building a combined natural gas plant. The other telling factor was that central governments in Europe kick in 25%-33% of upfront costs thus spreading the burden among all taxpayers. Long Island ratepayers, already saddled with the third highest rates in the country and constituting less than 1% of taxpayers nationwide, would have been obliged to shoulder the full burden. The new CEO of LIPA cited this particular point when he pulled the plug on LIOWP. Newsday heralded the demise with “Blowin’ in the Wind” but nothing about God giving in.

Flash forward two years later to witness T. Boone Pickens withdrawing from his much ballyhooed wind proposal in favor of natural gas. This was an octogenarian billionaire who let it be known throughout the land that he was going to meet his maker making as much wind as he conceivably could. Would if he could, but he can’t so he won’t. Austin energy, the most progressive utility in the nation, recently conceded that lock-in 10yrs prices for wind have doubled in the last year alone, citing Texas’ jammed transmission cables. Austin has signed up only 1% of its hoped-for customers. As reported in this blog last month, bankrupt California said it will be obliged to spend at least $12 billion to meet its renewable portfolio standards (RPS).

RPS could be exhibit A in George Will’s indictment of government by promise-making. These front-loaded mandates create demand-driven market distortions. Go read the prognostications for wind power at the turn of the millennium. Economies of scale were going to drive down the cost of wind power installation. Instead, prices went north. Why? Increased prices on commodities like steel played a role. And when oil was heading for $140/bbl, the same jack-up barges that drive turbine bases into seabed were out putting up oil derricks at much higher rates. Most significantly, if turbine manufacturer GE tripled its capacity while RPS-driven demand was increasing on the order of ten-fold, what business case would they be propelled to make for decreasing turbine prices?

The Calzeda analysis out of Universidad Rey Juan Carlos reports with dense data on the rigging of various tariffs that provide investment advantages for alternative energy. While Spanish bonds were yielding 5%, Calzeda estimates a typical 100kW PV plant yielding 17%. That’s Madoff territory. While the mean reference rate (TMR) was 7.2 c€/kWh in 2004, the TMR for one of these plants is set at 44 c€/kWh for the next 25yrs, adjusted to the CPI. Get your RayBans out when the utility bill comes. Internalizing carbon cost will go a ways to leveling the rate field between energy sources. The complex cap-and-trade scheme being proposed shows, once again, American unwillingness to learn lessons from the Europeans who have been down this road. We should ‘keep it simple, stupid’ (KISS) and levy a carbon tax at its source. But as t-a-x has become a three-letter epithet in this country, we’re going to play a convoluted commodity game that a few smart and slick numbers types will game while the rest of us get gamed.

Grand RPS green energy mandates are proving, once again, that the road to hell is paved with good intentions. And when the commitments come up short, as they consistently do, Kirstie Alley’s Law kick in: goals are made to be broken. 80% reduction in CO2 by 2050? Not even Mao and Stalin suspended belief to the point where they were coming up with grand 40yrs plans. How about telling us what’s to be done next year, explaining how it’s to be done and identifying the resources for getting it done. Shelve the make-believe; start doing it brick-by-brick and stop kicking the can down the road.

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