It has been recently reported that Massachusetts’ utilities National Grid, Northeast Utilities and Unitil have negotiated power purchase agreements (PPAs) for 565MW of electricity capacity from existing and proposed wind-farms in New Hampshire and Maine that would provide electricity at wholesale rates of approximately eight cents per kilowatt-hour.
These agreements were lauded by the Boston Globe, going as far as claiming that “wind power is now competitive with conventional sources”. Eight cents per KWh is cheap for wind, especially when you consider that Cape Wind currently has PPAs with NSTAR and National Grid for 18.7 and 20.5 cents per kilowatt-hour (not including 3.5% annual escalators).
However, the average wholesale cost of electricity in New England for 2012 was less than four cents per KWh according to the New England Independent System Operator (ISO-NE). Furthermore, the 8 cents/KWh rate doesn’t reflect the costs of transmission upgrades necessary to integrate these projects into New England’s electricity grid. At the request of all six New England Governors, ISO-NE conducted a study which concluded “the cost of interconnecting 2,000MW to 12,000 MW of wind power would be between $1.6 billion and $25 billion in transmission upgrades”.
Another problem with speciously declaring wind can compete with conventional power sources is the simple fact that wind has a number of hidden costs that aren’t reflected in the wholesale price. Wind generally receives one of two tax subsidies: (1) a $22 per MWh inflation-adjusted production tax credit (PTC) over the wind’s initial ten years of operation or (2) a 30 percent investment tax credit (ITC) against capital expenditures. While these tax credits aren’t necessarily reflected in rates, they are borne by taxpayers as a means to subsidize ratepayers—or robbing Peter to pay Paul, except in this case Peter is Paul.
A 2012 study completed by the American Tradition Institute estimates the cost of onshore wind electricity to be somewhere between 15-19 cents per kilowatt-hour. According to the report, wind’s principal benefit is to supply energy rather than capacity, which means that part of the cost of wind has to include the expense of maintaining and operating other generation to offset the intermittent nature of onshore wind farms. The existing wind farms in Maine operate less than 25% of the time. Basically, when it comes to wind and other intermittent resources like solar, ratepayers are paying for 100% of the wind PLUS 75% of the capacity in the form of backup generation.
Since natural gas is New England’s preferred generating source most utilized on “spinning reserve” to support wind generation, we must include not only the implicit subsidy (PTC or ITC) when calculating the true cost of wind power, but also: the cost of keeping natural gas plants running; the extra fuel that plants are forced to consume as a result of running less efficiently; and the additional costs of transmission and transmission losses, which, because of geographic (remote) location, exceeds those of conventional power plants—which tend to be located in more densely populated areas.
The Boston Globe used statistics provided by the United States Department of Energy’s Energy Information Association (EIA) to compare the 8 cent wind PPA to other forms of electricity generation. The data provided by the Globe is based on EIA’s 2018 national levelized cost estimates for new generation sources. One problem with using the 2018 EIA data is that it completely ignores actual generation costs from existing plants like Seabrook Nuclear Station, which receives the clearing price for its electricity (less than four cents per KWh in 2012) and doesn’t require the expense of a secondary source of generation to pass onto ratepayers.
Any argument that the proposed PPAs with National Grid, Northeast Utilities and Unitil will “save” ratepayers money is ridiculous and is really a lesser-of-two evils scenario. While 8 cents is significantly better for ratepayers than the egregious Cape Wind PPAs, which begin at 18.7 and 20.5 cents per KWh, it is still twice the wholesale average cost for electricity—not to mention the fact that many utilities and competitive suppliers offer retail rates below 8 cents per hour.
What we should be asking is why legislators throughout the region change which form of renewable energy is preferable without letting previous legislation mature and be evaluated. Instead they succumb to talking points aimed at satisfying a select political class of energy generators and the bureaucrats who stand to benefit from their policies. Ratepayers would be better served by demanding that their elected representatives consider policies that will actually lower costs—not raise them. Just think about it—if wind and solar were so efficient and cost-effective—why would they need subsidies and mandates? Electricity suppliers would be knocking down their doors to buy cheaper electricity—instead ratepayers are forced to prop up industries that cannot thrive on their own.
Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.
(A version of this column originally appeared in the Connecticut Mirror.)