Why Wind Power Transition Schemes Are Pipe Dreams
- Renewable energy advocates boldly proclaim that the levelized cost of electricity, or “LCOE,” from wind turbines is cheaper than the LCOE from thermal power plants.
- Unfortunately, LCOE calculations are inherently flawed because they price megawatt-hours of electricity while completely ignoring the intrinsic value of reliability.
- Under normal conditions, nuclear and coal-fired power plants provide baseload power for the ERCOT grid, while wind turbines and gas-fired plants serve excess demand.
- Since wind power is not consistent, dispatchable, or reliable, gas-fired power plants must be kept on perpetual standby for the inevitable periods when wind power fails.
- Keeping gas-fired power plants on standby creates massive investment redundancies and operating inefficiencies that increase electricity costs for all power consumers.
For the last three weeks, I’ve been studying wind power’s role in The Great Texas Blackout of 2021. Last week, I found myself wondering whether the US Energy Information Administration’s “Hourly Electric Grid Monitor” could provide more than a few days of data. When I explored the data options on the EIA’s website, I found I could specify a custom date range and download up to 31 days of hourly data. So, I downloaded complete hourly data sets for August 2020 and February 2021 and built stacked area graphs that show the actual contributions of nuclear, coal, wind, solar, and natural gas to Texas power supplies during those months.
The red segments at the bottom of each graph represent stable baseload power from nuclear plants. The grey segments represent tunable baseload power from coal-fired plants. The green and yellow segments represent intermittent and variable power from wind and solar. Finally, the blue segments at the top represent reliable dispatchable power from gas-fired plants.
Now let’s see what assumption-free-analysis of the historical data can teach us:
First, I’ve always assumed that coal-fired power plants generate stable power 24/7/365. So, I was surprised to learn that coal-fired plants in Texas are routinely ramped up to generate more power during peak demand periods and then ramped down to generate less power overnight. While coal-fired power’s ability to ramp up and down contributes to maintaining the balance between supply and demand, the process takes several hours.
Second, the graphs show how ERCOT integrates power supplies from several different classes of generating resources to keep supply and demand in balance 24-hours a day. If you stop to consider how the principal classes of power plants operate, several points become self-evident:
- Nuclear plants provide stable baseload power 24-hours a day and cannot change their power generation profile to help keep supply and demand in balance;
- Coal-fired plants can ramp up to make more electricity available for peak-demand and then ramp down to produce less electricity overnight, but it’s a slow process;
- Wind and solar power are dependent on weather conditions, which means their power output is highly variable, and they can’t be actively managed to maintain the balance between supply and demand; and
- After nuclear, coal, wind, and solar have contributed whatever they can to electricity supplies, dispatchable gas-fired power plants shoulder the entire burden of generating the “gap power” required to keep supply and demand in balance.
Third, the graphs show that standby gas capacity must be adequate to completely replace wind and solar power during the inevitable periods when the weather is uncooperative. In August of 2020, for example, the combined power output of Texas’ wind farms peaked at 18,749 MW, dipped to a low of 237 MW, and averaged 8,658 MW for the month. Similarly, in February of 2021, the combined power output of Texas’ wind farms peaked at 22,415 MW, dipped to a low of 649 MW, and averaged 8,928 MW for the month. There were four periods in August and three in February when available wind power was less than 10% of the monthly average for several hours. With that degree of variability, the only way ERCOT can ensure reliability is to ignore wind power and size its standby gas-fired generating capacity at 100% of the difference between expected power demand and available baseload power from nuclear and coal.
Fourth, the graphs show that even when wind power falls to minimal levels, problems are rare because gas-fired plants normally ramp to fill the gap. While there were notable failures of the standby system during the Great Texas Blackout of 2021, the storm that drove power demand to all-time highs and caused widespread equipment failures was unprecedented, a black-swan weather event.
Fifth, since a modest base of nuclear and coal-fired power, augmented by unlimited amounts of wind and solar power, can’t possibly provide reliable electric service, ERCOT must either:
- Depend on efficient natural gas as the gap fuel; or
- Depend on inefficient natural gas with redundant wind and solar power.
Wind farms can reduce fuel costs, variable operating costs, and CO2 emissions while a fleet of gas-fired power plants is waiting on standby, but wind farms can never eliminate:
- The capital and fixed costs of keeping gas-fired power plants on standby; and
- The capital and fixed costs of keeping fuel supply infrastructure on standby.
Since this fifth point is nuanced but critically important, I think the subject of investment redundancies and operating inefficiencies deserves more attention.
As I explained in an earlier article, ERCOT is the freest electricity market in the country. Any electric power producer can jump into the 15-minute market at any time and win the auction if it’s willing to accept a lower price. Therefore, the operators of wind farms enjoy several unique advantages in ERCOT’s auction market:
- The capital cost of building a wind farm is high, but operating expenses are low, which makes the marginal production cost per MWh very low;
- Wind farm operators receive a Federal production tax credit, or “PTC,” of roughly $20 per MWh, which frequently exceeds variable operating expenses; and
- Wind farm operators have no duty to provide any power at any time.
Since the playing field is far from level, wind power will always win in ERCOT’s auction system. Nevertheless, operators of gas-fired power plants are “expected” to keep their facilities on standby and provide all the gap power ERCOT needs without receiving standby compensation.
In a recent webinar, Wood Mackenzie reported there’s only been one year in the last decade when electricity prices in ERCOT were sufficient for a new gas-fired plant to earn an adequate return on capital. While Wood Mackenzie did not carry its analysis upstream into the pipelines that deliver gas to power plants and the gas fields and related facilities that produce natural gas for the electric power market, it’s a safe bet that:
- The entire value chain for gas-fired electricity has been revenue stressed for at least a decade; and
- The revenue stresses were a primary reason for winterization shortcuts that contributed to The Great Texas Blackout of 2021.
The ERCOT system tries to treat all power producers as equals, but its efforts at fairness ignore the harsh realities that:
- Wind farm operators that cannot generate reliable electric power receive PTCs and other subsidies that are unavailable to reliable power producers;
- Wind farm operators that cannot generate reliable electric power suffer no pain beyond a loss of revenue when their power production plummets;
- Gas-fired power plant operators are expected to provide standby backup for wind farm operators without receiving fair compensation for their service; and
- Upstream supply chain partners are expected to provide standby fuel resources for gas-fired power plants without receiving fair compensation for their service.
While wind power can never provide the 24/7/365 stability a modern electric grid requires, the current regime of generous subsidies, priorities, and preferences fosters insidious economic parasitism that starves reliable gas-fueled power infrastructure while encouraging spending on unreliable wind-power infrastructure.
More wind and solar power will never contribute to electric reliability in Texas.
For those who think grid-scale batteries are a practical solution, it would have taken 1.2 TWh of storage capacity, or roughly ten times the current global production of lithium-ion batteries, to carry Texas through The Great Texas Blackout of 2021. Batteries are useful in some high-value short-duration grid-based applications like frequency regulation and short-duration renewables integration. Still, they’ll never be good enough for long-duration energy storage, which is why the DOE is aggressively funding basic research into long-duration energy storage technologies.
Despite what you hear on the news and read in the papers, natural gas is not a mere “option” or a convenient “transition fuel.” The hard cold truth is simple:
A reliable grid that integrates nuclear, coal, wind, and solar power is impossible without plentiful natural gas to fill supply and demand gaps and keep everything balanced.
In most cases, the investment redundancies and operating inefficiencies of wind and solar power increase electricity costs for all power consumers.
For better or worse, wind power transition schemes are Pipe Dreams, free lunch stories that have no basis in objective reality.
Wind power advocates, climate change evangelists, demagogues, and politicians who pretend that it’s technically feasible and economically sensible to transition away from gas-fired power plants are either dishonest or delusional. While I’d be reluctant to make short-term bets against renewable energy companies because experience has shown that markets can stay irrational longer than short-sellers can remain liquid, I’d rather watch this circus from the sidelines.