Wednesday, August 27, 2014

How Badly Does Wind Power Blow, and Should the Government Subsidize It?

A few days ago, the Department of Energy praised wind power in a couple of recently released reports. The Department of Energy (DoE) not only found that wind power meets 4.5 percent of the electricity demands in this country, but that wind energy prices are at an all-time low. Considering that wind power is a clean fuel source, we should be celebrating the DoE findings. Not only that, but it should give us reason to renew the production tax credit (PTC) used to subsidize the wind power industry, although the IRS loosened the deadline by saying that anyone who incurred at least five percent of construction costs by the end of last year can still qualify for the PTC. I have to wonder whether the DoE's findings are noteworthy or if it is just a bunch of hot air.

The question of whether we should subsidize wind power is important because we are reaching a point where we need to invest in alternative energy sources. Oil and coal are non-renewable, high-polluting energy sources that will eventually run out. Natural gas is great, but will only be a medium-term solution. Increased nuclear power production is stifled by political infeasibility. Since something like wind power won't cause a Chernobyl, wind power causes less fear-mongering than nuclear power. Wind power seems like a viable alternative, but I have to wonder if it would work on a larger scale.

In order to fully understand wind power, we need to understand its disadvantages as much as its advantages, and that's without getting into negligible disadvantages such as noise disturbances, wildlife disruption, or whether windmills are eyesores. While wind power does not require any fuel costs, it is still very much a capital-intensive endeavor. As the DoE points out, wind power still needs to be able to compete with conventional energy sources on a cost basis. Since wind power costs 70-140 percent more than oil, coal, natural gas, or nuclear power, it makes me wonder just how much more expensive wind power would be if the government did not subsidize wind power. Even the Left-leaning Warren Buffett admitted a few months ago that wind power doesn't make sense without the PTC. Energy subsidies, and subsidies in general, are economically problematic. How much is due to the fact that the customer legitimately values wind power, and how much is due to the economic distortions of the PTC? We also have to realize that artificially decreasing prices in the short-run doesn't do anyone favors because the expected rate of return decreases, which will end up driving prices in the long-run (Lesser, 2013).

As the Cato Institute shows (ibid) shows, wind-generated electricity was least available when its demand was at its highest. Wind power is an intermittent, unpredictable power source. When considering the subsidy on a per-kilowatt hour basis, wind power gets a lot more money than coal or oil. Looking at the EIA's government projections for energy consumption, the combined percentage for renewable energy is less than 10 percent by 2040. If wind power does not have the capacity to provide for the consumption of American energy demand, then we should also have to question its efficacy.

The government already screws up with ethanol subsidies. Why should we continue to fund a failure with the PTC? This is not to say that we should not pursue wind power or we should dismantle windmills. Much like those over at Harvard's School of Engineering have realized, we should realize that wind power has its limits (Adams and Keith, 2013). Wind power should be a part of the portfolio of American energy production, but don't count on it being a huge part of that portfolio. If you still think that wind power will be the wave of the future, that's your prerogative. I just wouldn't hold my breath.

11-24-2014 Addendum: I recently came across this list of 20 reasons why wind power really blows.

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